Question : How do I determine the basis for a farm that was added to a living trust?
This farm was owned by my Granny's husband before they married. They created a living trust and the farm became part of the trust. He has passed on and Granny is looking to sell. I need to understand the tax consequences.
- asked by Bruno T
All Answers:
Answer #1
The transfer of property into a living trust isconsidered a gift to the trust, so the basis ofthe property is the same as it was in the hands ofthe donor. In your case, that means that thebasis of the farm is the same as whatever thebasis was when your grandmother's husbandtransferred it into the trust.IRS Pub 551 (linkedbelow) gives a detailed explanation for how tocompute the adjusted basis.
- answered by Mr Tax Preparer
Answer #2
The basis of the farm is what your grandmother'sspouse paid for it plus capital improvements thathave been made. There is no step-up in value uponthe death of the first spouse. Now, when yourgrandmother dies, the value may be stepped up IFthe asset is in her portion of the trusts thatwere created on his death. If the asset was in thebypass or B trust it will not be stepped up invalue, BUT it will not be part of granny's taxableestate either. If she sells while still alive, itdoes not matter in which trust it resides. Thetransaction will be taxable to your granny as acapital gain (I'm assuming that granny does notlive on the farm).
- answered by SDD
Answer #3
I am NOT a tax aatorney or accountant, but i had asome what similar thing happen with mother in-law. The farm belongs to the trust. If she sells,the money belongs to the trust. I think, and likeI said I am not an attorney, the trust is liablefor the capital gains on the difference betweenthe value of the sale and the value of the farm atthe time it became part of the trust. If you arein Georgia, I highly recommend Emory A. SchwallSr. Attorney at law. He specializes in wills andtrusts. I do not know if he is certified in otherStates though.
- answered by southron2002
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