Cost basis for exercising survivor's option on bonds

[retireeneedhelp]

A relative of mine is recently deceased. He had a number of bonds that has a survivor's option (payable at par upon death). He purchased them at 80 a few years ago. I've been told that I need to leave them in his current family trust account without changing the SSN or trustee in order to be able to exercise the survivor's option.

I'd like to know how one handles the cost step-up basis for this situation.

1) Is the increase from 80 to 100% attributable to capital gains on his original SSN?
2) Is the increase from 80 to 100% attributable to capital gains on his a new TIN for the estate?
3) Does the estate get a step-up to 100 (since the value theorectically has increase as of his death but the proceeds haven't yet been paid? This avoid any capital gain tax.

 

[FlyingRon]

There's no capital gain until they're sold. The person who sells them has the gain (if any). So if the trust sells them, the trust gets the gain (and pays the tax). If they are distributed to you, you get the gain. The basis does step up for people who died in 2011 (there are involved rules in step up for deaths in 2010 but you may get a step up there as well).

 

[retireeneedhelp]

There's no capital gain until they're sold. The person who sells them has the gain (if any). So if the trust sells them, the trust gets the gain (and pays the tax). If they are distributed to you, you get the gain. The basis does step up for people who died in 2011 (there are involved rules in step up for deaths in 2010 but you may get a step up there as well).

What is the cost basis for this situation?

 

[FlyingRon]

What is the cost basis for this situation?

Which situation? I can't vouch for what you have to do to exercise the option.
If the person died in 2011, the basis is the FMV of the asset at the time of his death.