Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

taxmanrog. Hi Roger, Client originally had an A/B trust.

taxmanrog. Hi Roger, Client...
taxmanrog.
Hi Roger,
Client originally had an A/B trust. The trust attorney had them rewrite the
trust when one of the two beneficiaries died in 2008. The new trust is called,
"power of appointment trust".
The husband died in 2011.
In 2013 the surviving spouse sold all her investments and stock.
The financial advisor wants to know what basis to use for these sales.
All were community property so I think the basis is their original cost
plus any dividend reinvestment.
What is a "power of appointment trust"?
Thanks again,
Fred
Show More
Show Less
Ask Your Own Tax Question
Answered in 18 minutes by:
8/22/2013
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,227
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

NPVAdvisor :

Hi, Looks like Roger is not online.



I can help with this.



A power of appointment is where someone through either will or trust gives someone else the power to say how the will maker – or trustmaker – 's asset will be distributed,



A general power is where the document (again a will or trust) says that Bob, my son, for example, says who or what charities get what .. a SPECIAL power is where more direction is given., i.e., I leave my car collection to my children, and Bob can say who gets which car.



Here a trust was used to do this rather than a will.



Whether these asset will be included in the gross estate depends on several factors and gets quite complicated, depending on things like whether this was designed as an intentionally defective grantor trust, what powers were included (swap powers, ability to name charities, etc)



The basis in the assets, however, will be stepped up to the Fair Market Value as of the date of the husband's passing, because the tax liability belongs to the grantor, so the grantor’s payment of the tax is not extra income to the trust and it is not a gift to the trust’s beneficiaries. Treasury made this clear in Revenue Ruling 2004-64,38 stating: “When the grantor of a trust, who is treated as the owner of the trust under subpart E, pays the income tax attributable to the inclusion of the trust's income in the grantor's taxable income, the grantor is not treated as making a gift of the amount of the tax to the trust beneficiaries.


NPVAdvisor :

Hwt you need to get from the attorney is whether or not this is a grantor trust

NPVAdvisor :

Sorry "What" you need to get ...

NPVAdvisor :

To qualify as a grantor trust, such power must be exercisable by the grantor or a nonadverse party or both without the consent of an adverse party. Section 674(a). An “adverse party” is a person with a substantial beneficial interest in the trust that will be adversely affected by the exercise (or nonexercise) of a power possessed by this party. Section 672(a).



An interest in the trust is substantial if “its value in relation to the total value of the property subject to the power is not insignificant.” Treas.Reg. §1.672(a)-1(a).



Generally an interest of a remainderman is only adverse as to the exer-cise of a power over principal. Treas.Reg. §1.672(a)-1(d). The interest of an ordinary income ben-eficiary, however, may be adverse to just a power over income but could also be adverse to a power over principal. Treas.Reg. §1.672(a)-1(c). A “nonadverse party” is anyone who is not an adverse party. Section 672(b).

NPVAdvisor :

But again, in MOST trusts containing a power of appointment, there will be a step up in basis for inherited assets because they are grantor trusts

NPVAdvisor :

Further if it is an irrevocable trust, the trust will get the step up in basis

NPVAdvisor :

And finally, Community Property gets a "FULL Step Up in Basis" A special rule applies to Community Property. Regardless of which spouse dies first, the entire 100% of Community Property is revalued at the date of death of the first to die.

NPVAdvisor :

Hope this helps

NPVAdvisor :

Let me now if you have questions

NPVAdvisor :

Lanwe

Ask Your Own Tax Question

Hi Fred,

... just checking back in, as I never saw you come into the chat.

You may want to take a look at this, as well

http://www.wwlaw.com/stepup.htm


and

http://blog.sfgate.com/pender/2013/07/23/selling-losing-stocks-before-death-to-get-step-down-in-basis/

and finally,

http://www.justanswer.com/estate-law/7eyk2-will-step-cost-basis-property-one-use-irrevocable-trust.html

Let me know if you have questions

Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,227
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now
Thanks Much, Fred

Let me know if I can help further.

Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,227
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,227
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
Ask your own question now

Thank you sir!

Lane'
Ask Your Own Tax Question
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,227
13,227 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
With Community property in a trust does the basis of all
With Community property in a trust does the basis of all property increase to the current value upon death of one of the parties. My wife is on her death bed now.… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,338 satisfied customers
I am disabled, i have no taxable income but i was told that
hi, i am disabled, i have no taxable income but i was told that i could get the proff of all the medication i had to buy this and get money back … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
If you are a single member S-Corp and taxable income is over
If you are a single member S-Corp and taxable income is over $315K and business is a service industry so would not get the 20% deduction under new tax reform, would changing to a C-Corp help pay less … read more
Lane
Lane
JD, CFP, MBA, CRPS
13,227 satisfied customers
I sold the business assets in an installment sale. Proceeds
I sold the business assets in an installment sale. Proceeds were: … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
We have sold our business as an asset sale with, mostly
We have sold our business as an asset sale with, mostly intangible assets. How do we minimize our tax liability? What needs to be listed in the Bill of Sale for assets? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If I don't have any ordinary income, only social security
Second opinion] if I don't have any ordinary income, only social security and have a long term capital gain from the sale of a business, how would it be treated for tax purposes? … read more
Lane
Lane
JD, CFP, MBA, CRPS
13,227 satisfied customers
If I don't have any ordinary income, only social security
if I don't have any ordinary income, only social security and have a long term capital gain from the sale of a business, how would it be treated for tax purposes? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
My withholding exceeds my tax liability for each of the the
My withholding exceeds my tax liability for each of the the first three quarters of 2017. However, in December 2017 I received a taxable gift of $78,000 from which nothing was withheld. I know this mu… read more
abci168
abci168
Principal
27 satisfied customers
Have a tax question about what is considered taxable income.
Have a tax question about what is considered taxable income. What is your fee? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
I plan to declare some foreign interest and dividends
I plan to declare some foreign interest and dividends totaling about 3000 pounds in each of the last 3 years, on some of which i suffered withholding tax at source. I have not been submitting an annua… read more
taxmanrog
taxmanrog
Master\u0027s Degree
768 satisfied customers
Suppose my taxable income in 220,000 this year and the tax
Suppose my taxable income in 220,000 this year and the tax rate is X up to 200K, but Y for 200and over, do I pay Y on the full 220K or just that above 200K? … read more
Lane
Lane
JD, CFP, MBA, CRPS
13,227 satisfied customers
On a property sale which 4 members have a 1/3 interest on
On a property sale which 4 members have a 1/3 interest on the sale. … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,061 satisfied customers
I have a question regarding the ordinary income tax. If the
Hello, I have a question regarding the ordinary income tax. If the ordinary income tax due is negative does that apply anywhere? This pertains to the sale of an S corp .business. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
If your taxable income is $0 (actually negative) is there a
If your taxable income is $0 (actually negative) is there a penalty for late filing? Do you need to file at all? What is the 2016 filing deadline with an extension?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,777 satisfied customers
Is 1120-S K1 non-passive ordinary income also taxable to
Is 1120-S K1 non-passive ordinary income also taxable to self-employment tax? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,777 satisfied customers
Sell of property tax liability. Ca. Bought home 25 yrs ago
bought home 400,000 selling 2.5 mil. Invested 500,000 owe 800,000… read more
Richard
Richard
Tax Attorney
Doctoral Degree
4,338 satisfied customers
When does the Florida sales tax liability due to the DOR'
When does the Florida sales tax liability due to the DOR' invoice & delivery or title registration with the county tag office? … read more
abci168
abci168
Principal
27 satisfied customers
Same question on the taxation of interest and dividends (on
Same question on the taxation of interest and dividends (on mutual funds) earned inside a disclaimed portion trust ... disclaimer trust . The original owner of a trust passed and the spouse declined a… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x