Donation of stock from a bypass trust

[the-lincolns]

Received stock from a bypass trust when the second of my parents died. I understand that the stock bears the purchase date and cost as carried in the trust with no step-up. I have donated this stock to a charity (donor advised fund). In TT, do I report this donation source as Inherited?. Doing this deems to add a host of irrelevant questions from the Item Donation path. It seems like the purpose of the Inheritance designation is to permit characterization as a long term gain when it has not been a year since the donor's death. This does not apply here. Do I need to report it as an inherited asset? Or perhaps as a gift since basis rules are the same.

[TomYoung]

"Received stock from a bypass trust when the second of my parents died. I understand that the stock bears the purchase date and cost as carried in the trust with no step-up."

That statement is somewhat ambiguous.  When the first parent died the stock placed in that trust did receive a step up to FMV at date of death.  When you actually received the stock at the death of the second parent, there would be no further step up.

Maybe that's what you really were saying, just wanted to be sure.

And the stock IS long term, as a matter of tax law.  I haven't gone through the stock donation portion of TurboTax for a while but the BIG distinction for donation purposes IS "long term" vs. "short term".  You're just as well of, and just as correct, to simply state you "purchased" the stock using the DoD of the first parent and the stock's FMV as of that date.

[RichardG]

Your basis in the stock is probably not the amount your parent paid for it.  Normally such stock receives a basis step up at the owner's death.  This explains the questions TurboTax is asking.  If for some reason the stock did not receive a basis step-up, then you can select the gift option.

If you inherit property from a decedent who died before 2010, or one who died after 2009 and whose estate was not elected to be exempt from estate tax, the basis of the property is usually the fair market value (FMV) on the date of death. However, if the executor of the estate chose an "alternate valuation date" of six months after the date of death, your basis is the FMV on the alternate valuation date. This is referred to as a "step-up" in basis since the value of the property is typically higher on the date of death than when acquired by the decedent.

If you inherit property inherited from a decedent who died after 2009 and whose estate was elected to be exempt from estate tax, in general your basis is the lesser of the FMV as of date of death, or the decedent's adjusted basis in this property. Note: In some cases, the estate executor may have increased the decedent's adjusted basis of property before its distribution; if so, consult the information provided by the executor to determine the basis for gain or loss.

In any case, the executor or administrator of the decedent's estate should be able to tell you your tax basis for the property. This will usually be the amount that was reported on the decedent's estate or inheritance tax return, if one was filed, or will be the amount the estate or trust paid for the property.

The same is also true for property held in a trust created by the decedent or the decedent's estate. The fiduciary of the trust should be able to tell you the basis, based on the estate/inheritance return.