My father passed away last year. He had a grantor trust that converted to an irrevocable trust upon his death. As his executor, I am both the successor trustee for this trust and the fiduciary responsible for filing his final individual return, with split-tax reporting for the year.
One complication that required me to seek an extension was a forced sale of some MLP units he owned that occurred shortly after his passing, but before the units could be transferred to a trust brokerage account. (The partnership just bought out the units out of the blue). He had owned these units for almost 40 years, and received a final K-1 for them under his own name and SSN that reflected his (considerably negative) individual adjusted basis.
My understanding is that because this K-1 was issued under his name, it will have to be reported on his individual return. However, legally, these units became property of the trust upon his death, so I would think they should be entitled to a step-up in basis as inherited assets. Moreover, the proceeds have since been moved into an account under the trust’s EIN. Therefore, will it be possible to just go ahead and take the step-up in basis that the trust should be entitled to, even though the K-1 as issued doesn’t reflect that? If not, should I request a new K-1 be issued in the name of the trust? I don't know how long that will take, or if they'll even do it.
Using Turbotax Premier for the individual return and Turbotax Business for the trust return.
Thanks.
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I am sorry for your loss.
Yes, the units receive a step up in basis (to their fair market value on the date of death) since they were acquired from a decedent, per Section 1014.
@mlpinvestor here are my follow-up thoughts:
I am sorry for your loss.
Yes, the units receive a step up in basis (to their fair market value on the date of death) since they were acquired from a decedent, per Section 1014.
Also, you should not need to have a new K-1 issued, but since this is an MLP, I will page @Rick19744 to see if he has any further input.
A few comments:
sorry for your loss.
The death of a partner often brings unanticipated and unwelcome tax and accounting complications to the partnership, the partner’s estate and heirs, as well as the partner’s final income tax return. When a partner dies, the tax year of the partnership closes for that partner, requiring tax allocations and entries to the partnership’s books.
Disposition of a partnership interest due to a partner’s death can involve basis elections to the successor partner’s interests, as well as questions as to how any suspended losses carried forward by the deceased partner must be treated for tax purposes
so I see 2 k-1s being required one through the date of his death reported on his 1040 and the other after reported on the 1041. this is also where the sale would be reported. this requires notifying the partnership of change of ownership and requesting a 754 step-up (if the partnership does them) based on market value on the date he died.
the partnership should supply sales schedule to aid in reporting the sale. you probably have one with the original k-1.
Thanks, everyone, for the sympathies, and for the help. I appreciate it.
@tagteam @Rick19744 Honestly, I don’t really know the actual basis. Dad never kept track of it, and I don’t think he bothered with suspended losses or carryforwards, either. I think he just got talked into this investment by some guy he knew at work once upon a time. It was a group of Pizza Hut restaurants.
I do have a negative number in the "partner’s capital account analysis" section of the K-1 that I assume is probably more or less the basis. I was hoping I could ignore that and report it as the market value at the date of death, with the capital gain on the sale being the difference.
I understand the reasoning for having two K-1s issued, but the second one would only be for about two months. For what it's worth, the sale also was recorded on his 1099 from Wells Fargo (where the units were held) as a non-covered sale with "N/A" listed in the cost basis and gain/loss columns. This 1099 was issued under his personal SSN in the name of his grantor trust, with him as the deceased trustee. I just don’t want any confusion to arise from reporting the sale differently on a new K-1.
Thanks again.
@mlpinvestor here are my follow-up thoughts:
Thanks, @Rick19744 . That's helpful. I hadn't considered just reporting the buyout price as the FMV for cost basis purposes. But that makes sense. And yes, the entire investment got bought out, so no further K-1s.
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