Question

Irrevocable Trust Question

Forum|Forum|4 years ago
April 5, 2022
2 replies
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My mother had put her house in an Irrevocable Trust, to be split evenly between her 3 children. We sold the house and the trust distributed the funds to each of us. She had purchased the house in 2016 for $570k and it sold for $640k in 2021. Do I have to issue K-1s for myself and siblings on the 'profit' of the house (70k) if we only received the house on her death in 2019? Is the 2016 number the correct one for cost basis?

M

Mike9241

No. you use the FMV on the date of her death for the cost basis. you also get to subtract selling costs. so you could well end up with a loss.

A

Anonymous_

Employee

@Mike9241 wrote:

No. you use the FMV on the date of her death for the cost basis. you also get to subtract selling costs. so you could well end up with a loss.

You have absolutely no idea regarding the terms of this trust.

If this is an IDGT, for example, there is no step up in basis.

A

Anonymous_

Employee

Anyone trying to answer this question would need to know the terms of the trust (by reviewing the governing document).

It is entirely possible for irrevocable trusts to be grantor trusts (or even partial grantor trusts).

In most instances, the trust receives a basis in the property that is stepped up to fair market value on the date of death of the grantor. Whether or not this occurs here is for a professional who can actually review the terms of the trust to determine.

You need to consult with a legal and/or tax professional who can read the governing document.