Step up in Basis pertaining to a Land Trust

[Nixon Vayupak]

Would anyone know the tax rules in regards to a "Step up in Basis" pertaining to a Land Trust. We have a person who passed away and created a Land Trust. In the Land Trust he made himself as one of the beneficiary and along with his son. The son has an LLC and plays the role as the Trustee of the Land Trust. Now the son would like to sell the property and we are not sure if he can qualify for the "Step up in Basis" benefits. The property was purchased for like 100K and now it is worth 400K.

[Dave Toelkes]

As a general rule, the basis of assets held in an inter vivo trust can be stepped up on the death of the settlor.  If the property held by the trust can be treated as still the property of the settlor just prior to his death, then a full step up in basis would be indicated.  However, if the property held by the trust is considered as property belonging absolutely to the beneficiaries, then any step up in basis would most likely be limited to the father's share of the property.

I suspect you need an attorney to review the trust document to make a determination as to whether the son was a co-beneficiary or a contingent beneficiary of the trust.  the answer to that question determines how much of the basis can be stepped up.

Not an attorney.  Just how I see it.