How do I determine the cost basis of the home inherited from parents who each had a revocable living trust that includes the home?

[seattlebum]

The original cost paid for the home by my parents was $50,000.  The home was placed into the revocable living trust of each parent, and later appraised at $660,000 when my mother died.  The home was appraised at $850,000 when my father died three years later and sold at that appraised value eight months later.  Do the trusts prevent me from using the last FMV at the last decedent’s death?  Should the original cost of the house be added to the final cost basis?

[Phillip1]

The FMV on the date of your father's death is the inherited basis that is passed on to you. Revocable living trusts do not prevent you from receiving a full stepped up basis. The original purchase price doesn't go into the inherited basis calculation.

[greggd29]

How about the SAME question, for an Irrevocable Trust?  Is stepped up basis allowed? 

[Anonymous_]

---

@greggd29 wrote:

How about the SAME question, for an Irrevocable Trust?  Is stepped up basis allowed? 

---

Actually, it depends. For the stepped-up basis to apply to any assets acquired from a decedent, the assets must be includible in the decedent's gross estate. IRC §1014(b)(10)

Assets held in a grantor trust are typically includible in the grantor's gross estate at the death of the grantor. Irrevocable trusts are not typically grantor trusts but they can be. Therefore, it is critical to determine whether the trust, although irrevocable, is a grantor trust (or partial grantor trust).

[pk]

@seattlebum  also note that typically, a revocable trust is set by each spouse covering all the marital property and each naming the other spouse as successor  trustee.  Alongside this  there is also a will by each spouse  leaving every thing to the living spouse, a pour-over clause to transfer the final trust to the estate of the last  spouse and the distribution  regime when both spouses pass. Also  note that the trusts each become irrevocable  on the death of the trustor.  Thus when the mother dies, her  trust becomes irrevocable, transfers the assets  per the will to the  remaining spouse. The when he dies, the trust which now consists of the  first spouse  and the second spouse becomes irrevocable, pours into the estate and gets distributed  per the last will and testament of  second to die spouse. Thus I do not see the meaning of the question that tries to draw a distinction between  distribution caused by a revocable trust and and irrevocable trust   What am I missing here ?

I generally agree with the  comments/answers by @Anonymous_ 

[earlrideau]

In the case of an A/B Trust or Bypass Trust, the decedent's trust should have been funded upon the death of the first spouse, thereby making it irrevocable.  The survivor's trust is a revocable trust until the survivor dies, at which time it becomes an irrevocable trust as well.

[AmyC]

IF the revocable trust became a part of the estate - filed form 8855 with the 1041 by the due date, then there would be a stepped up basis for the beneficiaries.