Revocable Living Trust, Death, & Capital Gains

[partiallypeeved]

What is the name of your state? Wisconsin

Hi there,

I forgot that when you play with fire, you'll eventually get burned.

I got talked into doing my wife's boss' mother's tax return and I'm all Googled out. The mother and father were trustees of a revocable living trust. The father died in January of 2007 and if I understand correctly, the community property (WI is a community property state) is entitled to step-up in basis as of the date-of-death of the deceased. In October, 2007, the surviving spouse sold some stock from the trust.

Except for a few dividend reinvestments, the stock had been owned long-term and would have qualified for tax treatment as a long-term capital gain.

But because of the step-up (which occurred less than a year from the time of the sale), should this be treated as a short-term gain - even though most of the stock was held long-term?

Which rule governs the tax treatment of the net gain on this sale?

Any advice - other than to leave complicated tax matters to the professionals??

 

[FlyingRon]

You're leaving out information. You mention trusts and then you mention community property. Was the stock owned by the trust or was it still in the individual's names.

The step up in basis does NOT turn it into a short term, however (regardless of how it was owned).

 

[partiallypeeved]

Thanks, Ron. The stock was owned by the trust, mother and father were trustees.

 

[FlyingRon]

Who's name was on the trust?