Category: Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background Decedent died in 1966 and left property in trust. Under the terms of the trust, the decedent's son was not entitled to trust corpus. The son received a stipend from the trust paid out of trust income. The trust agreement further provided that on the son's death, the trust would pass to children of the son (the grandchildren of the decedent). The son died and the assets of the trust were liquidated and distributed to the grandchildren. Based on my limited understanding of the facts, I have assumed that the value of the son's property interest is not properly includible in the son's gross estate--irrespective of whether an estate return was required. If that assumption is incorrect, then the conclusion set forth below is incorrect. Issue Are the assets of the trust adjusted to fair market value at the date of the son's death? Answer There is no adjustment to basis related to the son's death.
Internal Revenue Code Section 1014 provides the basis of property acquired from a decedent shall be the fair market value of the property at the date of the decedent's death or alternate valuation date if so elected. While it is true that the property was acquired as a result of the decedent's death, this is quite different from saying the property was actually acquired from the decedent. The statute requires that the property be acquired from the decedent. The son only had a partial interest in the property which expired at his death. Consequently, he had no property interest to transfer to the grandchildren. As a practical matter, the grandchildren acquired the property from their grandmother, not the son. Section 1014(b) and Regulation Section 1.1014-2 et seq address at length the meaning of the phrase "property acquired from a decedent". I see nothing there that changes the conclusion set forth above. In addition, here is an excerpt from the CCH Federal Tax Service at Paragraph §N:20.43. Example 2: Andy's will created a trust to pay the income to Betty for life with the remainder to go to Steve or his children. Five years after Andy's death, Betty died and the trust corpus was distributed to Steve. Provided the trustee has not sold the assets acquired from Andy, the basis of the trust property is its FMV at the date of Andy's death. While the passage set forth above is only commentary--and thus not authoritative--it simply serves to underscore the conclusion I have reached. |
