Question

During the taxable year, beneficiary M receives 100 shares of Acme common stock from Trust T. The basis of the stock is $70 per share to the trust, and its fair market value at date of distribution is $110 per share. The trust's DNI for the year is $60,000, all of which is taxable. There were no other distributions made or required to be made by the trust.

A) Assume the stock distribution was in satisfaction of an $11,000 pecuniary bequest to M. What is the tax result to M? To Trust T? What basis will M have in the Acme shares?

B) Assume the distribution did not represent a specific bequest to M, and that Trust T did not make a §643(e)(3) election with regard to the distribution of the Acme shares. What is the tax result to M? To Trust T? What basis will M have in the Acme shares?

Answer 1

A) Capital Gain
Deemed Selling Price	110
Cost to the trust	70
Gain Per Share	40
Number of Shares	100
Capital Gain in the hand of Trust	4000

But the trust is given to beneficiary hence it is not taxable in the hands of trust

The Basis will M have in Acme shares is 0

The shares received by M from Trust T in form of Pecuniary bequest is exempted in the hands of M and hence not taxable

B)

If the Distribution did not represent a specific bequest then capital gain of 4000 is taxable in the hands of trust.

The shares received by M for free is taxable as income from other sources and basis will M have in acme shares is Fair market value 110