Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Author: capgains00 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 4:37 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Are there any tax events that occur with an irrevocable trust (in this case stock holdings) when the grantor dies?

-at the time of the grantor's death does the beneficiary own the stock outright?
-am I correct the stock holdings in an irrevocable trust do not receive the favorable "stepped-up" cost basis?

btw, in my case I don't think the trust is large enough to incur any federal or state estate/inheritance taxes.

Print the post Back To Top
Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79536 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 5:20 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
Are there any tax events that occur with an irrevocable trust (in this case stock holdings) when the grantor dies?

-at the time of the grantor's death does the beneficiary own the stock outright?


It all depends on how the trust is set up and what it calls for.

-am I correct the stock holdings in an irrevocable trust do not receive the favorable "stepped-up" cost basis?

This is above my pay scale. It may very well also depend on the terms of the trust, or it may not.

In any case, if you're not concerned about estate taxes, knowing not much else about your situation I can't figure out why you're interested in an irrevocable trust.

Phil

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79540 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 6:03 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Are there any tax events that occur with an irrevocable trust (in this case stock holdings) when the grantor dies?

That's probably going to depend on the terms of the trust.

-at the time of the grantor's death does the beneficiary own the stock outright?

I'll stick my neck out and give a definitive "no" here. The trust has owned and continues to own the assets in the trust. If the death of the grantor triggers something that the trustee is supposed to do, they still need to take those steps spelled out in the trust. If that happens to be distributing some asset(s) to a beneficiary, the trustee needs to make the distribution before the beneficiary owns the assets. Again, you'll need to read the trust to know exactly what to do on the death of the grantor.

-am I correct the stock holdings in an irrevocable trust do not receive the favorable "stepped-up" cost basis?

Probably, but again it will depend on what the trust says and what happened to get the assets into the trust in the first place.

--Peter

Print the post Back To Top
Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79541 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 7:00 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
It is highly unlikely that you are the beneficiary of a already runded irrevocable trust with a grantor still alive, but if so, there is no step up in basis upon a death and all assets have a basis when acquired (either their cost or the basis of the grantor), because all the assets were essentially gifts by the grantor of purchased by the trust.

In an irrevocable trust the beneficiary never "owns" the assets unless they are distributed to him by the trustee under the terms of the trust.

Conversely, if it was originally a revocable (grantor) trust, when the grantor dies everything gets stepped up in basis and the trust BECOMES irrevocable. The beneficiary still doesn't own anthing until the trustee distributes. ed

Print the post Back To Top
Author: wintbill Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79543 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 8:03 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
I'll give a different angle to the reasoning and explanation of assets (i.e. stock) in an irrevocable trust.

When the trust was originally established as an irrevocable trust and funded with stock, the grantor likely did so to remove the stock from his/her estate. Therefore, when the grantor becomes deceased, the FMV of the stock is excluded from the value of the gross estate (the grantor must have no retained interest in the stock). When the trust is funded, the grantor is responsible for any gift (transfer) taxes under the unified transfer tax, where applicable (beyond the scope of this reply).

So in general, the basis of property may be increased above the decedent's adjusted basis in the property only if the property is owned, or is treated as owned, by the decedent at the time of the decedent's death. Again, generally, assets in an irrevocable trust are no longer owned by the grantor (provided there is no retained interest or holding of general powers of appointment, also beyond the scope).

Short answer: stock in an irrevocable trust does not qualify for the step up in cost basis at the time of the decedent/grantor's death.

Clear as mud.

Bill

Print the post Back To Top
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79544 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 8:09 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
Short answer: stock in an irrevocable trust does not qualify for the step up in cost basis at the time of the decedent/grantor's death.

Clear as mud.


Good thoughts.

Has anyone asked how the trust became irrevocable? If it became irrevocable BECAUSE of the grantor's death, then the step up should be available.

--Peter

Print the post Back To Top
Author: capgains00 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79545 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 9:32 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Thanks for these informative replies.

This trust was set up as an irrevocable trust by my grandmother, and the beneficiary is my mother. btw, I don't know what the the rationale was for establishing the irrevocable trust.

As long as we're talking about "stepped-up" basis- my grandmother is also bequeathing to my mother a large amount of a single stock holding (not in any type of trust). My grandmother has owned the stock for decades and it's appreciated substantially during that period. Unless I'm missing something, the step-up will mean if my mother sold any of that stock a very short time after inheriting it, the amount of the proceeds subject to long-term captital gains would be virtually zero- is this correct? Suppose the stock went down slightly after the date of my grandmother's death- would the step-up mean my mother would actually be able to claim a loss on any sale? Lastly, is the step-up rule scheduled to go away any time soon?

Print the post Back To Top
Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79546 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 10:17 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Peter, I didn't ask, but I did answer:
Conversely, if it was originally a revocable (grantor) trust, when the grantor dies everything gets stepped up in basis and the trust BECOMES irrevocable. ed

Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79547 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 10:43 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
As long as we're talking about "stepped-up" basis- my grandmother is also bequeathing to my mother a large amount of a single stock holding (not in any type of trust). My grandmother has owned the stock for decades and it's appreciated substantially during that period. Unless I'm missing something, the step-up will mean if my mother sold any of that stock a very short time after inheriting it, the amount of the proceeds subject to long-term captital gains would be virtually zero- is this correct? Suppose the stock went down slightly after the date of my grandmother's death- would the step-up mean my mother would actually be able to claim a loss on any sale? Lastly, is the step-up rule scheduled to go away any time soon?

Correct. If the stock passes to your mother as an inheritance after your grandmother's death, she gets the step-up value as her cost basis. If she sells the stock, even the next day, she will recognize a long-term capital gain or loss based on the difference between the sale proceeds and the stepped up basis.

This will disappear for one year in 2010.

Ira


Print the post Back To Top
Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79548 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/6/2005 10:51 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Unless I'm missing something, the step-up will mean if my mother sold any of that stock a very short time after inheriting it, the amount of the proceeds subject to long-term captital gains would be virtually zero- is this correct?

Yes, correct.

Suppose the stock went down slightly after the date of my grandmother's death- would the step-up mean my mother would actually be able to claim a loss on any sale?

Yes, it is a long term capital loss.

Lastly, is the step-up rule scheduled to go away any time soon?


No. If the estate tax is eliminated the step up rule will probably be eliminated also for larger estates. ed



Print the post Back To Top
Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 79549 of 121599
Subject: Re: Irrevocable Trusts When Grantor Dies Date: 6/7/2005 6:39 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
Lastly, is the step-up rule scheduled to go away any time soon?

No. If the estate tax is eliminated the step up rule will probably be eliminated also for larger estates.


It would appear that Ed and Ira disagree, but they don't. It's just that Ira is telling you what the law is, and Ed is telling you what the law may be.

Many of the tax law changes passed in the last few years "sunset" in 2010. This was a trick to fit the numbers into budget rules and give politicians more fodder: "It's a tax increase! No, it's letting the provision sunset!" We're not supposed to notice.

Anyway, no one thinks the law on the books today, which eliminates the step-up and estate tax in 2010, reverting to 2001 law in 2011, will be the law in 2010.

Phil

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (11) | Ignore Thread Prev Thread | Next Thread
Advertisement