How to Determine the Trust Basis of Assets

By Jennifer Williams

The cost basis of assets, when used in the context of a trust, means the value of assets held by the trust, as calculated for tax purposes, as of a certain "triggering event." Trust assets can include a wide variety of property, such as real property, automobiles, art, jewelry and investment portfolios. Upon the occurrence of a triggering event, the trustee needs to calculate the value of each trust asset as of the event date. Knowing how to determine the cost basis is an essential function of a trustee, as he is charged with knowing and preserving the value of the assets he oversees.

Step 1

Identify the triggering event. The death of the trust's creator, known as the settlor, can be such an event because it creates the need to distribute trust assets to the beneficiaries and dissolve the trust. Before this can be done, the trustee must know the cost basis of the assets. A tax audit could also constitute a triggering event, as an audit requires a comprehensive inventory and valuation of all assets in the trust to satisfy the IRS that the trustee is properly paying taxes on the assets.

Step 2

List all assets in the trust as of the triggering event date. Trust records should be specific and detailed; they should include an inventory as of the date the trust was created and indicate the date each asset was transferred into or out of the trust after that date. Compile the list by including all assets noted to have been transferred into the trust on or before the triggering event date.

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Step 3

Assign a cost value to each asset. It must be the value on the triggering event date. The IRS allows use of the assessed value for real estate tax purposes as the cost value of real property and attachments. Value stocks, bonds and investments according to their published value on the triggering event date. The stock section of the newspaper on the relevant date can provide stock values; investment professionals can also provide records of portfolio values on any particular date. Antiques, jewelry and artwork may require an appraiser who specializes in valuation of these types of assets; an appraiser will likely be necessary for the valuation of a business as well.

Step 4

Adjust the cost basis for appreciated value and depreciation due to consumption, wear and tear, and age. This new valuation is called the adjusted basis; it is needed to provide an accurate and up-to-date valuation. This is another area in which a professional valuation expert comes in handy, as increases and decreases in value depend on multiple factors, not all of which affect value equally. Employing a professional consultant allows for an accurate adjustment and determination of the adjusted basis.

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What Happens When a Revocable Trust Ceases?
 

References

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