Double Step Up for Beneficiary??

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FinishLine
Posts: 1
Joined: Wed Sep 12, 2018 1:28 pm

Double Step Up for Beneficiary??

Post by FinishLine » Wed Sep 12, 2018 1:39 pm

Hi: Hoping someone can confirm my understanding based on conversation with Fidelity today.

When my mother passes away, her various stocks and mutual funds will be stepped up in value as of the day of her passing.

1) I will be placing a portion of her estate in a Special Needs Trust for my brother, establishing a tax id for this trust and opening a brokerage account in the name of the trust.

2) Per Fidelity, I can transfer "in kind" mutual funds from her individual brokerage account (now that she is deceased) to the new special needs trust brokerage account.

3) I expect to outlive my brother, at which point I will be the sole beneficiary of the special needs trust. Fidelity tells me at that point I can once again transfer "in kind" the mutual funds from the special needs trust brokerage account to my individual brokerage account, AND get a step up in value based on the date of my brother's passing.

So there are basically two step ups in this regard? One for my mom, and later another for my brother/special needs trust?

Also, due to trust tax rates, what specific fidelity funds would you recommend that won't throw out regular capital gains /dividends?

Gill
Posts: 4816
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Double Step Up for Beneficiary??

Post by Gill » Wed Sep 12, 2018 2:46 pm

I don’t believe the terms of the special needs trust would cause it to be included in your brother’s estate and therefore there would be no step up.
Gill

Alan S.
Posts: 7856
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Double Step Up for Beneficiary??

Post by Alan S. » Wed Sep 12, 2018 3:15 pm

Is the SNT created under her will, or previously where your brother never owns any of these assets individually? If so, that is far better than having him fund the trust with his own money or money he inherited individually.

The latter would result in the SNT being a "self settled trust". Such a trust is subject to Medicaid recovery upon his death where Medicaid is owed whatever they paid on his behalf. You would only inherit what was left.

Conversely, if the SNT is the direct beneficiary of brother's share, there is no Medicaid recovery.

Gill
Posts: 4816
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Double Step Up for Beneficiary??

Post by Gill » Wed Sep 12, 2018 3:30 pm

Alan S. wrote:
Wed Sep 12, 2018 3:15 pm
Is the SNT created under her will, or previously where your brother never owns any of these assets individually? If so, that is far better than having him fund the trust with his own money or money he inherited individually.

The latter would result in the SNT being a "self settled trust". Such a trust is subject to Medicaid recovery upon his death where Medicaid is owed whatever they paid on his behalf. You would only inherit what was left.

Conversely, if the SNT is the direct beneficiary of brother's share, there is no Medicaid recovery.
It sounds as if the sibling is creating the trust.
Gill

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