JoeTaxpayer <
JoeTaxpayer@comcast.net> wrote:
Stuart O. Bronstein wrote:
Just because a trust is irrevocable doesn't necessarily mean no
step up in basis. These are several criteria for a trust being a
grantor trust - being irrevocable is one, but there are others as
well.
I have seen lawyers who don't know what they are doing, see
someone with money so they come up with something they think will
justify them charging a large fee - even though they have no clue
what it's all about. If that happened in this case, there may
still be hope.
I searched a bit, having a decent idea of the use of one type of
trust vs the other. For example, I had my MIL put everything into
a revocable trust a few years before her passing. On her death, it
was as simple as sending the broker a copy of the death
certificate. A week or so later, I saw the basis adjusted to the
data of death.
Also, I understand the irrevocable was popular back then, if only
for the fact hat with a sub-$1M estate exemption ($600K in '98
IIRC) one wanted the gift to the trust to be a completed
transaction to be used as the annual gift limit. I set up one for
my daughter then, '98, to own the insurance policy and gifts,
given the low exemption.
In this case, if you have anything else to share, I'd appreciate
it. My searches didn't find anything to support the basis
increase. As the numbers show, the difference, in April, can be
quite a bit for this woman and her siblings.
"Grantor trusts" are defined by sections 671 through 679 of the Tax
Code. You can find them here:
https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter- 1/subchapter-J/part-I/subpart-E
When a trust qualifies as a grantor trust, even if it is irrevocable
it is treated, for income tax purposes, as if its owned by the
grantor - its essentially ignored for income tax purposes.
Life insurance trusts are irrevocable grantor trusts, but the
beneficiaries are considered the grantors. That's why they usually
only have insurance policies and not other assets - they don't want
to have any taxable income.
One particular kind of irrevocable grantor trust, that is used by the
very wealthy, is called an "intentionally defective" trust. This is
a trust that is irrevocable, but is considered to be a grantor trust.
So the grantor can transfer property to his beneficiaries - and even
sell property to his beneficiaries, without any income tax
consequences. And the sale means it's not a gift, so there are no
gift tax consequences either. So property is transferred from one
generation to the next completely tax free.
But my specific point in your case is that this is a very complex
area of the law, many lawyers don't know what they are doing, and
that there is a chance (though probably small) that the lawyer who
created your trust made a mistake that might have made it a grantor
trust.
--
Stu
http://DownToEarthLawyer.com
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