Shouldn’t the cost basis of a mutual fund be set to the fund’s NAV price when a person dies?
My parents invested in three mutual funds in the Sixties/Seventies. These assets were put into the Crockett Family Trust, a revocable trust my parents established in 1991. The company that created and managed the funds was later acquired by American Century.
Our father died in 2010 leaving our mother as the trustee of the Crockett Family Trust. Our mother died in September 2022. My brother and sister became joint trustees of the trust. Its been a painful exercise getting all of the assets held in the trust re-titled with my brother and sister named as trustees.
They just received a document from American Century indicating that they are now the trustees for the Crockett Family Trust. The document states that the cost basis for the funds will be the average cost basis of the shares/units acquired. If the shares/units are based on the average cost over 50 years, this could create a significant capital gains for the trust.
Should my brother and sister contact American Century and verify that the cost basis is based on the NAV price on the day our mother died?
Also, would it be better to have American Century sell the funds instead of transferring the funds to Charles Schwab where a Crockett Family Trust account was established to receive the stocks held in the trust?
Mutual funds, like other assets, can be stepped up upon death, if they are eligible. The eligibility is the key. For mutual funds in particular, the step up would be to the closing price for the fund on the date of death, which may or may not be the NAV.
Generally assets held in a trust are eligible for a step up in basis as long as the value of the trust is included in the decedent’s estate. So if the value of the trust was included in your mother’s estate, then the assets in the trust should be eligible for a step up. If the value of the trust was not included in your mother’s estate, then the assets would not be eligible for a step up. Generally, non-inclusion in an estate only happens for irrevocable trusts, but there are some revocable trusts that become irrevocable upon death of the owner, and may not be included in the estate.
Depends on whether the assets have a step up in basis and if you want to keep those particular funds.
I would also point out that only assets acquired after 2011 are required to have the cost basis reported to the IRS. Even then, corrections to what the brokerage reports are allowed, if the brokerage basis is incorrect.
Any idea of when/how that happens? I have a revocable trust (I am the sole maker of the trust), that holds the bulk of my current assets. Upon my death, my wife gets the income from the trust (can get some principle also under certain circumstances), and then upon her death, the trust is liquidated and proceeds go to the children.
That is what my question was about but it was unclear from the document my brother and sister received after American Century re-titled the trust to identify that they were now the trustees.
American Century claimed that the default was to use the average cost basis to value the shares in each fund. This wouldn’t be that bad if the value of the shares were valued at the higher of their market value or NAV price on the day our mother died.
It would be really bad if the shares were being valued at the average cost basis as our parents purchased shares in the funds in the Sixties or Seventies from a the funds’ originator in California that was later acquired by American Century. All distributions from the funds over the last 50-60 years have been in the form of additional shares.
Given that almost all of our parents’ equities and funds are worth less than they were on the day our mother died, can more than $3000 in losses be used to reduce income on a Form 1041?
Only $3000 can be used against ordinary income each year, and the rest is carried over to future years, just like for your individual return. On the final 1041 for the estate, any unused capital loss carryover can be distributed to the beneficiaries using the K-1 box 11. From the instructions for the 1041 2022 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 (irs.gov)
