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How to Prepare a Trust's Initial Inventory

The starting point for any trust is the property funding it. This property is listed on the trust’s initial inventory (that is, a list you create of all the initial assets of the trust), where you show each asset’s cost basis (the acquisition cost it carries as it enters the trust, which may be the grantor’s purchase price, or the date-of-death value for assets that flow into the trust).

Although preparing the initial inventory may seem like a daunting task, it’s really not. You already should have all the necessary information; it’s just scattered. You can collect and sort the data into a nice, neat package. Remember, the beginning inventory is the starting point of the trust’s history, which you’ll eventually trace from inception to termination by creating accounts.

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. How can you calculate that basis? It’s usually as simple as the amount the donor paid to obtain the property.

Thus, 50 shares of XYZ Corp the donor purchased on April 15, 2000, for a total of $5,000, and then donated into his revocable trust on April 15, 2013, has a basis inside the trust of $5,000 and an acquisition date of April 15, 2000. If the trustee then sells these shares on April 16, 2013, for $10,000, the holding period is 13 years, and 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 (or a portion of the property is damaged due to a casualty loss).

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.

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 the date of death or an alternate valuation date, it’ll be considered as acquired on the date of death. Any sales within the first year of acquisition are long term for the purpose of calculating capital gains and losses.

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