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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1561
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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ESTATE TAX HUSBAND DIES IN 1990 AND PUTS PUBLICALLY TRADED

Resolved Question:

ESTATE TAX:

HUSBAND DIES IN 1990 AND PUTS PUBLICALLY TRADED COMMON STOCK WITH A FAIR MARKET VALUE AT DATE OF DEATH OF $15,000 INTO A "SIMPLE" TRUST. INCOME TO WIFE FOR HER LIFE THEN AT HER DEATH REMAINDER GOES TO THEIR THREE CHILDREN.

WIFE DIES IN 2010 WHEN FAIR MARKET VALUE OF COMMON STOCKS IN THE TRUST IS $45,000.

(1) I BELIEVE THAT IF THE TRUST SELLS THE STOCK IN 2010 AND DISTRIBUTES ALL OF THE CASH, AFTER MOTHER'S DEATH, THERE WILL BE A $30,000 LONG TERM CAPITAL GAIN PASSED OUT TO THE THREE CHILDREN ON A FINAL FORM K-1 AS BENEFICIARIES.

(2) I BELIEVE THAT IF THE TRUST "DISTRIBUTES" THE COMMON STOCK TO THE THREE CHILDREN IN 2010, WITHOUT SELLING THE STOCK, THE THREE CHILDREN WOULD TAKE THE COMMON STOCK WITH A TAX BASIS OF $5,000 EACH (CARRYOVER BASIS) AND NO GAIN OR LOSS WOULD BE RECOGNIZED UNTIL THE CHILDREN SOLD THE STOCK. ALSO, ANY SALES ON THIS INHERITED STOCK WOULD BE LONG-TERM REGARDLESS OF HOLDING PERIOD.

DO YOU THINK I AM CORRECT? ANY FURTHER ADVICE? THANKS FOR YOUR HELP.
Submitted: 7 years ago.
Category: Tax
Expert:  Arthur Rubin replied 7 years ago.
Thank you for using Just Answer.

Your analysis is consistent with recognized tax procedures for trusts. It should be noted that the trust is not "simple" in its final year, but, as all assets are distributed, the question of whether the exemption is $100 or $300 is moot.

The trust's expenses should have been deducted on the trust's tax return, so that the wife's taxable income should have been reduced by the amount of those expenses, and:

In option (1), the capital gain is reduced by those expenses.
In option (2), the trust's final return can allocate the deductions to the dividends accrued in 2010 before her death, and pass any excess through as a miscellaneous itemized deduction on line 11 code A of the Schedule K-1
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