On January 10, 2017, Martin Zuckman, founder of Visage-tome, transferred a block of Visage-tome stock with a
Question:
On January 10, 2017, Martin Zuckman, founder of Visage-tome, transferred a block of Visage-tome stock with a basis of $10,000 to a trust with himself as trustee. The fair market value of the block of stock transferred to the trust was $5 million. The trust provides for distributions of income and principal to his two children and their issue at his discretion to provide for health, education, maintenance and support.
Martin grants his father, Edward (a retired furniture salesman), a testamentary general power of appointment. Upon Edward's death, Edward may appoint the remaining trust property to the creditors of his estate. In default of Edward's power of appointment (i.e. if he doesn't exercise it), the trust continues for the benefit of Martin's children by the same terms.
Edward dies on January 10, 2019. On January 10, 2019, the fair market value of the block of Visage-tome stock in the trust is $8 million. Edward has $11 million of estate tax exclusion and $3 million of assets (outside of the trust) that are included in his gross estate, and, therefore, he does not owe any estate tax. On January 11, 2019, the trust sells the Visage-tome stock for $8 million.
Based on the information above, please answer the following questions:
How much gain or loss does the trust recognize as a result of the sale?
Has Martin successfully stepped up the basis of the Visage-tome stock without causing any negative tax consequences for his father's estate? Why or why not?
Are there any negative tax or non-tax consequences to this arrangement?
Consider the tax consequences of the sale if Martin had never granted his father a general power of appointment. How does this transaction affect your view of the fairness of the step up in basis rule?
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett