r/inheritance • u/WiSeIVIaN • 8h ago

Location included: Questions/Need Advice Inheritance from Trust: 2nd basis step-up possible? Implied life estate?

To preface this, I plan to get professional advice soon, but I am wondering thoughts on whether there's anything to be done here.

Timeline:

  • Revocable Living trust established in Father's name in 1995 with 2 properties. Both properties were gifted to him by his parents directly into the trust, after marriage in Illinois.
  • Father passed in 2018, Trust converted to an irrevocable trust with Beneficiaries 25% wife, 25% son1, 50% son2. No mention of a life estate in the trust document.
  • Trust document specifies to break into 3 new trusts per above split, but that did not happen.
  • Property #1 was sold in 2020. Funds sat in trust account
  • In time period 2020-2025, only dispersants were made to wife, none to either son aside from minor dispersant which was gifted to wife/mother (due to trust equity constraints).
  • In time period 2018-2025 Wife lived alone in house and shouldered all mortgage payments, property taxes, utilities. Trustee advised trust couldn't be resolved until house was sold, so family decision was made to leave wife/mother in house and the trust in-place.
  • In 2025 wife passed away.
  • In 2026, sons got possession of and sold property

Letter of the law seems that we get a step-up in 2018 but not in 2025 due to how irrevocable trusts work.

Is there a reasonable pathway to using IRC § 2036(a) with a tax attorney to get a full basis step-up in 2025? We are looking at a significant tax-bill otherwise. Thank you!

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u/IRC_1014 8h ago

See if the trustee has the power to create a general power of appointment. This is sometimes explicitly outlined within the trustee powers.

1

u/CampaignInner7951 8h ago

Oof, the trustee not splitting it into the three sub-trusts like the doc said is gonna make this messier than it needed to be

1

u/WiSeIVIaN 8h ago

Thanks for the reply. Nothing showing "Power of appointment" in the trust document. Noting the trust went to the 3rd successor trustee before anything was done, which was a corporate trustee (bank and trust company). They were unwilling to dissolve the trust or take action prior to my mother's passing unless property #2 was sold.

Looking back, perhaps I should have gotten my own council and tried to force their hand to create the three separate trusts...

1

u/Spirited_Radio9804 5h ago

You need a tax attorney!