Step-up basis question

[artp]

Farm land from father was put in irrevocable complex trust in 1982 with distributable income going to him and his wife as beneficiaries; capital gains is taxed in the trust. They continued to operated the farm until he died in 2002. Farm continues to operate under the trust with DNI going to widow and capital gain taxed in the trust. Trust sold part of the farm land in 2023. My take is the there is a step-up in basis for the FMV of the land when father died in 2002. Agree??

[Lion EA]

Father didn't own the land in 2002, so father's death didn't step up land basis.

But my brain is fried, so keep researching!

[DANRVAN]

Most likely

2 hours ago, artp said:

Farm continues to operate under the trust with

In most cases irrevocable trust are not included in the estate of the decedent as it appears here.  Therefore no step up in basis.

[DANRVAN]

17 hours ago, artp said:

Farm land from father was put in irrevocable complex trust

Are you sure it is an irrevocable trust?  

17 hours ago, artp said:

They continued to operated the farm until he died in 2002. Farm continues to operate under the trust

Why would they set up an irrevocable trust under those circumstances?  Is there a large taxable estate? 

What happens when wife passes away?

Have you read the trust document or checked with attorney?

Maybe it is actually a grantor trust that has been treated otherwise?  Just doesn't seem right to me.

 

 

 

 

 

[artp]

 

Correction: This was a revocable trust.  See below:

Got confirmation that no gift tax return or estate tax return was filed in 1982. The wording in the trust is as follows:

Mr. X (father) as "settlor of this trust, hereby declares that from after the date hereof he shall hold and administer as "Trustee" the property described in Schedule A (farm ground ect.) and any other property which may be added to the trust as follows:

FISRT: As long as Settlor is acting as Trustee, he shall have power to withdraw any part or all of the net income and principal of the trust.

I would take that to mean he could have pulled the farm ground out any time he wanted as part of the principal. So until he died he in effect had control over the assets in the trust. Would need to run this by the attorney to confirm.
Anyone have other thoughts?

[DANRVAN]

1 hour ago, artp said:

So until he died he in effect had control over the assets in the trust. Would need to run this by the attorney to confirm.

Sounds more like a revocable trust and makes more sense.  For sure confirm with the attorney.

 

20 hours ago, artp said:

died in 2002. Farm continues to operate under the trust

Are there any depreciable assets that could have been stepped up back in 2002?  

Possible 481(a) adjustment?

[artp]

No. Just farm land.

[Lion EA]

I'd ask the trust lawyer who set it up, if available, or a trust lawyer. The "hold AND administer" wording sounds different than what you're saying the trustee could do. I don't think 

6 hours ago, artp said:

he could have pulled the farm ground out any time he wanted

is the same as HOLD and administer. It's not hold OR administer. Let the lawyer answer to your client.

[Sara EA]

This was a grantor trust until the grantor died, so yes there was step-up basis in 2002.  The wording you quoted clearly shows that the father retained power of appointment (he could do whatever he wanted with the trust), so it was a grantor trust.  Not sure if it was a complex trust, which can change from year to year, but that doesn't affect your answer to this question.