Question

Arthur purchased a Rembrandt portrait for $15,000. Five years ago, when it was worth $28,000,

Arthur gifted the painting to an irrevocable grantor trust. Arthur is the owner of the trust, but the trust document says it will not become part of Arthur's estate. Which of the following statements is TRUE? The basis of the painting after Arthur's passing will be:
a.$15,000
b.$28,000
c.Its fair market value on the date of Arthur's passing.
d.Its fair market value six months after the date of Arthur's passing.

Answer 1

The basis of the Rembrandt painting after Arthur's passing will be its fair market value on the date of his passing. This is consistent with tax regulations where the basis is stepped up to the fair market value at the time of death.

The correct option is c.Its fair market value on the date of Arthur's passing.

Step-by-step explanation:

The statement that is TRUE regarding the basis of the Rembrandt portrait after Arthur's passing, when it was gifted into an irrevocable grantor trust, is c. Its fair market value on the date of Arthur's passing. Generally, for tax purposes, the basis of property that is acquired from a decedent is stepped up (or down) to its fair market value as of the date of the decedent's death (Internal Revenue Code Section 1014(a)). This rule applies regardless of whether the property was owned outright by the decedent or included in their estate for estate tax purposes. Since the trust document specifies that the painting will not become part of Arthur's estate, it's implied that separate rules of trust and estate taxation apply. However, the gifting of the painting five years ago at a value of $28,000 is irrelevant to the basis calculation upon Arthur's death.

The correct option is c.Its fair market value on the date of Arthur's passing.