Because Kristi retained the annuity interest from the trust, if she dies during the five years after the establishment of the trust, the full fair market value of the trust assets will be included in her gross estate.ī. Of the following statements regarding Kristi's transfer to this trust, which is true?Ī. Kristi retained a 5% annuity payout from the trust for the lesser of five years after the establishment of the trust or until her date of death, and she has named her only nephew, Alex, as the remainder beneficiary of the trust. The trust is designed as an irrevocable grantor trust. Kristi transferred $10,000,000 to the Kristi Family Trust. The holding period will be short term because the holding period will only include the time Rustin held the property which is less than 1 year (he held the property for 6 months). Since Rustin sold the property below the FMV at time of transfer, the lower number is used and the loss is $80,000 - $75,000 = $5,000. Thus, in this example, Jeff gave property to Rustin that had depreciated in value and Rustin's basis is subject to the double basis rule. If the fair market value at time of transfer is used, then the holding period begins at the date of transfer. If the donor's carryover adjusted basis is used, then the holding period includes the time the donor held the property as well as the time the donee held the property. The holding period will depend on which basis is used. If the donee subsequently sells the property for an amount between the two bases, there is no gain or loss.
The basis for losses is the fair market value as of the date of the gift (the lower value) and the basis for gains is the donor's adjusted basis. In this case, the donee will have a basis for gains and a basis for losses, called the double-basis rule. One exception to this rule is when the fair market value of the property at the date of the gift is less than the donor's adjusted basis. In general, when a donor makes a gift of property other than cash to a donee, the donee will take the property at the donor's adjusted basis. What is Rustin's loss on the sale of the land? Luckily, he sold the property a week later to an old Cajun named Boudreaux for $75,000. After six months of owning the property, and sharing his bed with the alligators, Rustin decided to move back to the city. Rustin promptly built a house in the middle of the swamp and made his home. When Jeff gave the property to Rustin, the value of the property had fallen to $80,000. Shortly after he purchased the property, Jeff realized the investment was a flop! To hide his embarrassing investment, he decided to give the property to his cousin, Rustin, as a graduation present when Rustin graduated from UVU. Unfortunately, he did not realize the property was pure swamp land and completely uninhabitable by anyone (except maybe some Cajuns from New Orleans). Several years ago he purchased what he thought was prime property in Louisiana for $100,000. Jeff has always been a successful businessman.
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