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Old 12-02-2014, 11:30 AM
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Basis step up at death question

I can't seem to find the reference for this tax question:

Husband and wife jointly held a brokerage account titled in the name of their family trust. The husband died in May and the trust directs that half the assets go into the A trust and the other half to a bypass trust that will not be included in the survivor's estate when she dies.

Question? At what level can we split the assets for the bypass trust.

Example: they owned two stock positions 100 shares of ABC and 100 shares of XYZ. Does he own 50 shares of each and we can, therefore, step up the basis of his 50 shares and put them in the bypass. Or, does he own 50% of each share and therefore all shares have their basis adjusted to reflect the average of the original basis and date of death value. Then 50% of each position goes to the bypass.

Is this in the IRC somewhere??

Thanks

Kelly



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Old 12-03-2014, 01:58 PM
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Question? At what level can we split the assets for the bypass trust.====>>>> A: One reason that the trust provides for a bypass trust after the death of husbdnad is to preserve the estate tax exemption of the deceased spouse. Before ,the estate of a surviving spouse inheriting her spouse's assets had to include them in her gross estate for purposes of determining the estate tax. With a bypass trust, some of those assets those in the bypass trust would not be taxed. So, Aslongas you leave your assets in the form of a bypass trust, also commonly referred to as the "Bypass Trust, that assets will not be subject to estate taxes when you die.By leaving assets to each other in bypass trust form,you can guarantee that the assets will only be taxed once between the two of you.to do this, your spouse must not have an unrestricted right to withdraw principal. However, you can give your spouse the right to withdraw principal to provide for her health, education, maintenance, or support, and you can also give her the right to withdraw up to $5k of principal per year for any purpose, or 5% of the total principal, whichever is greater.
Except as provided above, your spouse cannot have the right to give the trust assets to herself, her creditors, her estate, or her estate's creditors. You can, however, give her the right to name in her will specific persons who will succeed to the trust upon her death. For example, you could authorize her to leave the trust to any of your nieces and nephews, or to divide it as she pleases among your children.


Example: they owned two stock positions 100 shares of ABC and 100 shares of XYZ. Does he own 50 shares of each and we can, therefore, step up the basis of his 50 shares and put them in the bypass. Or, does he own 50% of each share and therefore all shares have their basis adjusted to reflect the average of the original basis and date of death value. Then 50% of each position goes to the bypass. ========>>>>> How this works is that at the death of her husband, the trust splits 50% into a Survivor’s Trust and 50% into a Bypass Trust (assuming that all the assets in the trust are community property). Subject to certain restrictions, you also are able to grant the trustee the power to distribute trust principal for particular needs of your spouse and/or other beneficiaries. If properly structured, the assets in the trust would not be included in your surviving spouse's estate and would then "bypass" your spouse's taxable estate at her death and pass estate-tax free to the beneficiaries of the trust.



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Old 12-03-2014, 02:05 PM
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Thanks for the response but I'm still not clear. Which shares get stepped up? His 50% off all shares or his 50% of each share?

Kelly



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