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Is there a stepped up basis for the secondary beneficiaries of a credit shelter trust?? Primary beneficiary DOD in 12/09??

Parkersburg, WV |

credit shelter trust est. 1996- Took marital deduction for credit shelter trust
Surviving sposue -beneficiary; children secondary beneficiary
beneficary dies 12/09; assets distributed to children in 2010
What circumstances if any would allow a stepped-up basis in assets

Attorney Answers 3


A credit shelter trust is created to preserve the decedent's estate tax exemption so a marital deduction would not apply in this case. Since the step-up in basis occured when this irrevocable trust was created in 1996, when the exemption was just $650,000, the trust assets were not entitled to a second step-up at the death of the primary beneficiary in 2009. The only way that a second step-up might have been achieved is if all the assets of the credit shelter trust (except those that would otherwise have been subjected to taxation in the survivor's estate) were distributed to the survivor prior to the survivor's death, a bold strategy considering that we can rarely determine our date of death. The lesson learned here is that all estate plans need to be review from time to time to make sure they remain relevant and achieve their goals.

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Based on the facts that you provided, Attorney Zaremba's answer is correct. Since the assets remained in the trust until the death of the primary beneficiary, the basis was established in 1996. You should be sure to consult with a qualified tax accountant and an estate planning attorney to ensure that you minimize any future taxes that these assets might generate.

This answer is not intended to provide specific legal advice. No attorney client relationship between you and Shoffner & Associates or any of its attorneys is established, intended ,or implied. This answer should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction regarding your particular situation. Any advice contained in this communication is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding Federal tax penalties that may be imposed on the taxpayer

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You may be confused about the terminology.

A Credit Shelter Trust (often informally referred to as a Family Trust) is typically designed to make use of a decedent’s transfer (estate) tax credit, while leaving the assets available to help support the surviving spouse, without subjecting the assets to a possible tax at the death of the second spouse. Assets in a properly drafted Credit Shelter Trust will not be includable in the estate of the second to die. Any assets above the amount qualifying for the credit will avoid being subject to taxation at the first death through the taking of the marital deduction, those assets being typically being held by a qualifying Marital Deduction Trust. While prudence dictates that such trusts be managed separately, with distinct taxpayer ID numbers, they are nevertheless usually created and governed by the same instrument.

Assets qualify for basis step-up by virtue of being includable in a decedent’s estate. Any property for which a marital deduction was taken in the estate of the first to die should be in the estate of the second to die, and thus qualifying. You should speak with an tax, estate and probate attorney in your area.

This response is provided for general informational purposes only, and should not be considered to be legal or tax advice.

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