To anyone willing to chime in: Setting up A/B trust after death of first spouse

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badtzmaru
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Joined: Mon Jan 03, 2022 1:47 pm

To anyone willing to chime in: Setting up A/B trust after death of first spouse

Post by badtzmaru »

Happy New Year to all! My mother (after the passing of my father/her husband in late 2021) is now working under the terms of an outdated joint Revocable Living Trust (“A-B-C”). They live/lived in a non-community-property state with no state estate taxes. The total, joint Fidelity brokerage acct value is greater than the 2021 federal single-estate-tax exemption but less than the “couples’ exemption.” Yep, there is $ to be spent on professional advice, and we intend to soon, but I'm gathering info now to possibly correct the mishmash of info otherwise on the Internet.

I am urgently looking for at least a good CPA if not a new tax attorney.

Questions, assuming that we are stuck with the A/B/C (revocable A, Marital + irrevocable B, Bypass (CST)) + C (Bypass overflow, N/A) split-up of the Trust:

1. After Fidelity received the death certificate last week, it looks like the cost bases for all of the securities held in the joint-Trust-owned brokerage account ("The Billiam Reginald Smith-Jones and MaryBeth Smith-Jones Revocable Trust") were stepped-up to date-of-death values. I thought that only half of the equities bases would be stepped-up: my father’s pre-death “half”. Not correct?

2. To avoid “mixing of A/B assets”, do we need to (or is it at least advisable to) split the brokerage holding into 2 equal parts, one possibly under a newly-named “The MaryBeth Smith-Jones Revocable Trust”, limited to “her half”, and also a Bypass Trust called, well, I don’t know what it would be called. Ideas? And my understanding is that the value of the assets in the Bypass trust cannot exceed my father's half of the joint-brokerage acct, eh? And if only half of the brokerage assets should be stepped-up, should we put that stepped-up half into the Bypass trust? (ignores the philosophy of "A = value assets, B = Growth assets" ...)

3. I am assuming that the A/B setup would or might require a modification of the original Trust to name the A and B trusts officially in a new “Certification of Trust”, on-which to base the A/B Trust names to be supplied to Fidelity?

4. When is “pencils down” on the split-up into A/B assets, after which there might be a penalty? (The execution is being done under an amicable good-faith effort by me, my mother and my brother, all beneficiaries) What action defines the official split? At least a signed (if not notarized) document listing the assets in A and B? This assumes no filing of the Estate Tax form 706, which the attorney says is made un-necessary by the Bypass Trust funding. And I understand that the act of “distribution assets into the A / B Trusts” is treated as a sale by the IRS and can result in unrealized capital gains taxes.

5. Advice about putting the house (~$270k value) into either the A or B trust?

Thanks for any advice.
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