How to Prepare a Trust’s Initial Inventory
The initial inventory is the starting point of a trust’s history, showing each asset’s cost basis as the grantor acquires it. The trustee must collect and sort this data for the property funding the trust.
Assets directly from the donor
When putting together the list of assets, you need to value the decedent’s assets to ensure that your records are complete. Property placed in trust during the donor’s lifetime carries with it the donor’s adjusted basis and acquisition date. The basis is usually as simple as the amount the donor paid to obtain the property.
Thus, 50 shares of XYZ Corp that the donor purchased on April 15, 2000, for a total of $5,000, and then donated into his revocable trust on April 15, 2008, has a basis of $5,000 and an acquisition date of April 15, 2000. If the trustee sells these shares on April 16, 2008, for $10,000, the holding period is eight years, and the capital gain is long term.
The donor’s basis may be adjusted if, for example, he or she reinvests dividends or if improvements are made to property. Also, if the trust is revocable before the donor’s death, the basis of assets the donor has placed inside the trust prior to death will change to the value on the donor’s date of death, or to the value six months after death, if the estate chooses to use alternate valuation.
If a donor funds an irrevocable inter vivos trust prior to death, the assets in the trust retain the donor’s adjusted basis and acquisition date. There is no change in basis or acquisition date when the donor dies.
Assets from the donor’s estate
Property that funds a trust via the donor’s estate carries with it the donor’s date-of-death value. Whether valued as of date of death or alternate valuation date, it’ll be considered as acquired on date of death. Any sales within the first year of acquisition are long term, for the purpose of calculating capital gains and losses.