Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.
First of all, in terms of the Trust, your title would be a Trustee & I'm presuming that you were the only trustee.
If I understand your description correctly, during your mother's lifetime she received the income from the trust and had no ability to use the principal without your consent, normally for her care and maintenance of her life style.
Based upon these assumptions, there would have been a step-up in basis to the Fair Market Value at the date of your father's death, but there's no step-up at your mother's death as she didn't control the trust.
The original purpose of the structure was to remove the assets in the trust from her estate. Unfortunately, back in the period when the trust was established sometime prior to your father's death in 2000, there was no way to know what the estate tax rules would be when your mother died.
Yes, you're right I am the trustee and there are no others. And no, she had no ability to use the principal.
ok, so there is a step up in basis from my father's date of death to my stepmothers?
The only thing that could have been done & there may have been reasons you didn't want to do it, would have been to distribute trust assets to your mother (or her living trust) while she was alive & then there would have been a step-up in basis. With the 5,000,000. exemption equivalent as far as the estate tax goes, there probably would have been no estate tax either.
No, there's no step-up beyond your father's date of death, which would have been the trust's tax basis; that's the basis you and your brothers will acquire when the assets are distributed.
I don't understand what you mean. I believe I did what the trust stated I should do.
Keep in mind this is my stepmother, not my mother. The trust stated she was entitled to income that the stocks in the account generated-income only.
Well, I don't have the trust to review, but normally the Trustee would have broad powers to distribute principal if that became a wise thing to do; they way we write them the Trustee could terminate the trust and distribute the assets to the beneficiary if he determined that it made sense to do so; as long as the beneficiary has no right to require that, there's no tax problem.
Well, as I said, I don 't have all the facts and there may have been other reasons you had to deal with; that being one major one; if she was inclined to do something else with the principal, other than pass it on to you & your brothers, that could have been a potential problem.
that's just not how my dad set up the trust.
So, we are going to have to pay tax any gains after my dad's date of death?
I understand, nobody knew what the rules would be 12 years after he died.
Yes. You will acquire the trust's tax basis in the securities.
ok so no step-up correct?
No step-up at your step-mother's date of death. Correct.
Ok thank you.
Sorry to confirm what you already knew.
Please remember to "ACCEPT". Feedback, if you have time & bonuses where you think they are warranted are always most appreciated. I'll be happy to answer any follow-up questions you may have.