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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Cost basis for QTIP trust assets

Customer Question

My father died in 1983 leaving his estate in trust to my mother
thru QTIP
and bypass credit shelter trusts. My mother just died last month.
My 2 brothers and I are the remainder beneficiaries of the trust.
Is the
cost basis for the assets in the trust, (i.e. real property and
stocks) based on the year he aquired them (approx. 1973 and
before) or the year in
which he died (1983 when the trust changed to irrevocable)?
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

TheQTIP trust assets' basis will be included in your Mother's estate and the cost basis will be based on the value of the assets as of your Mother's date of death.  The credit shelter trust assets's basis will be based on the value as of your Father's date of death (plus reinvestment of dividends,etc.).

   
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Christopher, thanks so much for your reply. I'm just a little
confused since it seems that if the QTIP's basis is the value it is
at my mother's death then there wouldn't be any estate tax
owing since there is no increase in its value over its cost basis(?)
It seems like the IRS would want to get some estate tax out of all
this and so far they haven't gotten any at all since the credit
shelter trust already insulated my father's exemption amount at
the time of his death.
Expert:  Christopher Phelps replied 11 years ago.

The estate tax is calculated based on the net value of your Mother's personal assets, plus the assets in the survivor trust (i.e. "A" trust) and plus the assets in the QTIP, not on the "gain" since your Father's death.  The assets in the credit shelter trust are not subject to estate tax at all. 


Your mother also has a $1,500,000 exemption to apply against the taxable estate.


For example:  Lets assume the fair market value of the assets yu have in the "A" trust, as of the date of your Mother's death is $1,500,000, $1,000,000 in the "B" (i.e. credit shelter trust) and $1,250,000 in the QTIP trust.  The gross estate is $2,750,000 (i.e. $1,500,000+$1,250,000).  The taxable estate will be $1,250,000 (i.e. $2,750,000-$1,500,000).  The assets in the credit shelter trust are not taxed in your Mother's estate.


Each person's estate is taxed separately at their death.  For individuals who died in 2004 and 2005 the estate tax exemption is $1,500,000.


The assets you inherit from your other's estate and the QTIP will have a cost basis equivalent to their fair market value as of the date of her death.  The cost basis of the assets you inherit from the credit shelter trust will be whatever the Trusts' basis in the assets are (i.e. FMV as of date of death of your Father or purchase cost  if purchased after Father's death).  

 
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thanks for your help.

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