Cost Basis Adjustment Form for Inherited Shares -- Joint Revocable Trust

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cjonblanchard
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Location: Chicago area

Cost Basis Adjustment Form for Inherited Shares -- Joint Revocable Trust

Post by cjonblanchard »

I'm checking in again, but with a different issue. My husband and I had a Family Trust with about $400K in Vanguard mutual fund shares. The F.T. was under his S.S. number, as his name was listed first on the trust doc. Sadly, he passed away earlier this month. I advised the Vanguard rep of his passing with regard to the shares in the F.T. The F.T. called for certain monetary sums to be given to other parties (which I, as Trustee, will do) and that the remainder of assets in the F.T. would remain the property of the F.T.

Since the Vanguard brokerage account was under his S.S. number, Vanguard is in the process of creating a new account under my S.S. number, and then transferring the shares in the old account into the new account. At the end of our conversation, the rep added a Cost Basis Adjustment Form to my inbox and asked if there should be a step-up in cost basis for the shares, and if there should be, to complete and submit the form. I told the rep that since the shares were still in the Trust, I wasn't sure there would be a step-up, and speculated whether many others use the form in the same circumstance. She replied, "you'd be surprised" and to check to see if there should be a step-up.

It'd be great if the share values could be stepped up, as they're now worth more than double the original value, but it seems to good to be true. Not sure if this is applicable, but we live in Illinois. which considers brokerage accounts as marital property and so division of assets is done equitably, instead of equally (whatever that means!).

I'd appreciate any thoughts on this issue. Thanks once again for your wisdom!
Last edited by cjonblanchard on Thu Jul 29, 2021 10:07 am, edited 1 time in total.
HomeStretch
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by HomeStretch »

Does the Trust Agreement include any provisions about this?

Your estate attorney that drafted the Trust should be able to give you guidance.
MrsBDG
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by MrsBDG »

A quick Google shows:


Determining the basis of assets held in trust depends on whether the trust is revocable or irrevocable, on the trust’s tax identification number, and on whether the assets are included in the grantor’s estate. Although there are some exceptions—and you should always seek help from your tax advisor—these fundamental principles should get you started.

Revocable Trusts
When a revocable trust is funded by a grantor, the assets continue to be treated as the grantor’s own for tax purposes. Upon the grantor’s death, the trust assets are included in the grantor’s estate and receive a new basis equal to the fair market value (FMV) on the date of the grantor’s death (or an alternate valuation date). The trust then becomes irrevocable, and when the assets are distributed to the beneficiaries, the basis is carried over—meaning the beneficiaries’ basis is the trust’s adjusted basis.
Gill
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by Gill »

We’re you both grantors and who owned the assets used to fund the trust? Do you live in a community property state?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Topic Author
cjonblanchard
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Location: Chicago area

Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by cjonblanchard »

Yes, we were both grantors and IL is not a community property state (it's a marital property state). I have an e-mail in to the attorney who drafted our Trust docs and Will, but haven't heard back from him yet. It'd be great if cost basis should be changed, but it does seem to good to be true. From the Vanguard rep's comments, I wonder if some people have the costs basis changed just because they were offered an opportunity to do so vs. whether it's the correct way to handle it. No way of knowing....
rossington
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by rossington »

If the assets allocated to the grantor that has passed become assets in a now irrevocable trust how can they be stepped up?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Gill
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by Gill »

How were the assets that funded the trust originally titled?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
bsteiner
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Re: Cost Basis Adjustment Form for Inherited Shares -- Family Trust

Post by bsteiner »

You may want to change the subject line. "Family trust" generally refers to a credit shelter (bypass) trust. From your description, this sounds like it's a joint revocable trust.

Joint revocable trusts are mainly for community property states, mainly California since it's the largest community state by population and the one where revocable trusts are commonly used. You would have to look at the terms of yours to see how the death of one spouse would affect the basis. The lawyer handling the deceased spouse's estate may be able to help you with that.
Topic Author
cjonblanchard
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Location: Chicago area

Re: Cost Basis Adjustment Form for Inherited Shares -- Joint Revocable Trust

Post by cjonblanchard »

Thanks, bsteiner, just did that. I also just heard from our tax attorney. He said that 50% of the shares in what's called our "Family Trust" here in Illinois should have their cost basis changed, since we each have a 50% interest. He also confirmed that our Family Trust is revocable, which was my understanding. He said that there is no stock answer as to whether a trust is revocable or irrevocable -- depends on the wording and circumstances.

Thanks again for everyone's input!
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