I need help from trust professionals making sure I'm working this correctly.
House was purchased in 2006. Grantor transferred house to a complex irrevocable trust in 2017. Grantor died in 2020. There is 1 beneficiary (daughter), who has lived at the house since 2016. Trustee is selling house in 2021.
The adjusted basis is the 2006 purchase price + capital improvements thru sale date? There is no stepped-up basis at the date of death, correct?
The trust pays the capital gains (max 20% for trusts)? The trust plans on distributing $10K of the proceeds to the beneficiary (right after sale), does the beneficiary pay taxes, or is this considered a principal distribution, and therefore no tax consequence to the daughter?
There are now irrevocable trusts that do get a stepped up basis, but you have to read the trust to find out, and know what makes it able to get a stepped up basis. Did the trust have an ein, and file 1041 in past years would be one clue. If never filed a 1041 in past years might indicate it is eligible for stepped up basis. You should call attorney that set up trust. Most irrevocable trusts can be quite complex, and you will need to do a lot of research if your not experienced. you could not get your questions answered here to fill out properly. Just my opinion
Thanks -good advise! The language seems fairly simple, but I'll have someone else review the agreement. The trust has a separate EIN but a 1041 wasn't filed in prior year because there was no income. The only item in the trust is the house.
Once I figure out if there's step-up or not, does the capital gain get taxed to the trust? The $10K shouldn't be taxable to her, correct?
Was a gift tax return filed in 2017?
Does the trust provide whether capital gains are included in income for purposes of figuring distributions?
I wouldn't assume the trustor or the attorney knew what they were doing, but it won't hurt to ask, and to check for any explanations that were provided at the time.