I am successor trustee of a person who deceased in January in Nevada, near the bottom of a stock price dip of at least 10%. The irrevocable trust has its EIN and assets transferred . The estate is not big enough to require form 706 (no estate tax, only income taxes). I have some minor tax personal background but still am not finding understandable information on the estate income taxes. Issues:
1) Should I sell the stocks which have gained back the 10% and more since the date of death or should I transfer them as stocks to the beneficiaries living trusts as stocks to be sold in the destination accounts? Does it make any difference for those that have gained? Either location uses the stepped up basis (which carries forward into the beneficiaries account is stocks are distributed as stocks). I believe the form 1041 will show interest, dividends, cap gain and potentially proceeds of stocks sale but, if I distribute stocks or cash in an amount greater the total of the incomes, form 1041 will show no taxable income due to a distribution credit. True?
2) The Schedule D (Form 1041) uses a net gain, I understand from looking at the forms. That is, a winner of $15,000 an a loser of $-6,000 gain makes a net cap gain of $9,000 to carry to the Form 1041. I had been told that no losses from the stepped up basis were allowed, i.e., had to be shown as $0 gain, not loss of $6K, but that may be only in personal (not estate trust) tax rules. That implies losers should be sold in the trust with a bigger winner rather than passing to the beneficiaries as stock. True?
2) Basis. The basis is the fair market value (FMV) on date of death, not the price paid by purchaser. The person passed at 3 AM Jan 14. The market was so volatile that the estate value is different by tens of thousands of dollars depending on the time used. Close of Business Jan 13? Open on Jan 14, Close on Jan 14, or highest value during the day of Jan 14? "FMV" is not defined in the instruction to Form 1041 or Schedule D (1041) but I understand close of market on day of death is 'normal practice' for FMV and so happens it is good for me. Am I correct on using the close of market on the day of death?
3) The alternative valuation date concept allows for reduction of estate tax using 6 months later value (or day sold if before 6 months) if the estate value is lowered. I have been told I have the option re: stepped up value even when there is not estate tax due. Please advise if this is possible (and a reference, if possible); the basis would be about $100,000 higher in the right direction.
4) All sales of inherited stock, either in the estate irrevocable trust or by the beneficiaries will be long term gains. True?
You comments would be appreciated. I have ordered and read books, many web pages all touching on the same top level issues, but not addressing tax efficiency. I have tried to find an available estate accountant nearby whose office is not many floors above ground level to consult, but haven't found a fit. Your time is appreciated.
1) Should I sell the stocks which have gained back the 10% and more since the date of death or should I transfer them as stocks to the beneficiaries living trusts as stocks to be sold in the destination accounts? Does it make any difference for those that have gained? Either location uses the stepped up basis (which carries forward into the beneficiaries account is stocks are distributed as stocks). I believe the form 1041 will show interest, dividends, cap gain and potentially proceeds of stocks sale but, if I distribute stocks or cash in an amount greater the total of the incomes, form 1041 will show no taxable income due to a distribution credit. True?
2) The Schedule D (Form 1041) uses a net gain, I understand from looking at the forms. That is, a winner of $15,000 an a loser of $-6,000 gain makes a net cap gain of $9,000 to carry to the Form 1041. I had been told that no losses from the stepped up basis were allowed, i.e., had to be shown as $0 gain, not loss of $6K, but that may be only in personal (not estate trust) tax rules. That implies losers should be sold in the trust with a bigger winner rather than passing to the beneficiaries as stock. True?
2) Basis. The basis is the fair market value (FMV) on date of death, not the price paid by purchaser. The person passed at 3 AM Jan 14. The market was so volatile that the estate value is different by tens of thousands of dollars depending on the time used. Close of Business Jan 13? Open on Jan 14, Close on Jan 14, or highest value during the day of Jan 14? "FMV" is not defined in the instruction to Form 1041 or Schedule D (1041) but I understand close of market on day of death is 'normal practice' for FMV and so happens it is good for me. Am I correct on using the close of market on the day of death?
3) The alternative valuation date concept allows for reduction of estate tax using 6 months later value (or day sold if before 6 months) if the estate value is lowered. I have been told I have the option re: stepped up value even when there is not estate tax due. Please advise if this is possible (and a reference, if possible); the basis would be about $100,000 higher in the right direction.
4) All sales of inherited stock, either in the estate irrevocable trust or by the beneficiaries will be long term gains. True?
You comments would be appreciated. I have ordered and read books, many web pages all touching on the same top level issues, but not addressing tax efficiency. I have tried to find an available estate accountant nearby whose office is not many floors above ground level to consult, but haven't found a fit. Your time is appreciated.