Re: AB trust taxes
- From: "boostm3" <elliott.paule@xxxxxxxxxxxxxxxxxxxx>
- Date: Sun, 3 Dec 2006 13:46:24 -0500
Bingo... Excellent answer.. Thank you... Thats just what I was looking for..
As for the DIY comments from the others, this is NOT a DIY situation.. We
have competent and expensive lawyers on the case who have drafted many years
ago the AB trust papers... Mine was a simple question on exercising a sale
and its relationship to the B family trust that its in. I must have pulled
a brain cramp by forgetting about the step up in cost value. Thanks for
"cpt banjo" <cptbanjo@xxxxxxx> wrote in message
I have a question about the workings of AB trusts. In this example the
father owns a $2million house and about $.7 million in stocks. He dies
designed2007. The house will pass into the "A" trust which is ultimately
whichto go to his two children tax free representing the entire estate tax
exemption, while the remaining $.7million passes into the 'B' trust
Letsgoes to his wife.
In this example, lets say the house is sold shortly after the father is
deceased by the successor trustee who takes over when the father dies.
ofsay the purchase price of the house back in 1985 was $.5million, so that
there is a potential capital gains tax hit of 2million - .5million =
1.5million x 15% = $225,000. The question is, who pays this capital
gains tax and when; is it the 'A' trust which owns the house at the time
thesale which must pay the tax which would lessen the inherited amount of
In this case, for the children to get the full benefit of the $2million
estate exclusion, wouldnt it be better for the house to be sold before
waspassed into the 'A' trust so that the full exclusion amount could be
utilized and made up by his stock holdings? For instance, if the house
getsold while he was alive, fetching a net value of $2million - $225,000
(capital gains amount) = $1,775,000, then an additional $225,000 of his
stocks could be incorporated into the 'A' trust so that the kids could
the benefit of the full $2million exclusion.
Is this a correct analysis? thank you.
There will be no capital gains tax when the house is sold, since its
adjusted basis is stepped-up to the date of death value. Accordingly,
when it's sold there's no gain.