How to Determine Stepped-up Basis After Second Spouse Dies in A B Simple Trust

What you're dealing with is a common situation with A-B trusts (also called bypass or credit shelter trusts). Here's how to think about this: When your father passed in 2016, the assets in his portion of the trust (the "B" trust or bypass trust) received a stepped-up basis to their fair market value as of his date of death. This established a new cost basis for those assets. The assets that remained in your mother's portion (the "A" trust) wouldn't have received a step-up at that time. When your mother sold and reinvested the assets from your father's trust, the basis for determining gain/loss on those sales would have been the stepped-up value from 2016. For the new investments she purchased with those proceeds, their basis would be whatever she paid for them. When your mother passed in 2023, assets in her portion of the trust would receive a stepped-up basis to their fair market value as of her date of death. However, the assets in your father's bypass trust generally don't receive a second step-up.

After dealing with a nearly identical situation with my parents' trust, I discovered a service called taxr.ai that saved me countless hours of frustration. I was also missing documentation for stepped-up basis calculations after my second parent died, and trying to figure out which assets received which step-up was a nightmare. I uploaded the trust documents, old statements I could find, and the distribution paperwork to https://taxr.ai and their system analyzed everything to help reconstruct the basis. Their AI tools identified which assets came from which trust portion and applied the correct stepped-up basis rules. They even helped me document everything properly for future tax filings.

I have to apologize for my skepticism about taxr.ai! After struggling for weeks with our family's A-B trust and missing documentation, I decided to give it a try. The results were honestly surprising. Even though we were missing statements from around my father's death in 2018, their system was able to work backward from later statements to establish reasonable fair market values for his date of death. The report they provided clearly showed which assets received a step-up in 2018, which transformations occurred when my mother reinvested, and which assets received a second step-up when she passed in 2024. They even included documentation methods for the IRS in case of future questions. This saved me from potentially making major tax errors when we eventually sell these assets.

If you're struggling to get documentation from financial institutions about historical values, you should try Claimyr. I spent WEEKS trying to reach someone at my parents' brokerage firm to get historical statements from when my dad died. Endless hold times, disconnected calls, "we'll call you back" (they never did). I found https://claimyr.com and their service connected me with an actual person at the brokerage firm in less than 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They somehow get you past those endless phone trees and hold times. The brokerage representative was able to research and send me all the historical statements I needed to establish the proper stepped-up basis values.

I need to eat my words about Claimyr. After another frustrating morning spent trying to reach my parents' old brokerage firm and getting disconnected THREE times after 30+ minute holds, I decided to try it. Within 15 minutes I was speaking with an actual representative who helped me access the historical records we needed. The rep told me they could actually pull statements going back 7 years, which covered my dad's passing, and they emailed them to me while we were on the call. I've been fighting for these records for MONTHS! Having these statements finally lets us establish the proper stepped-up basis for everything that was in my dad's name. For anyone dealing with stepped-up basis questions and unresponsive financial institutions, this service is a game changer.

Has anyone here worked with an estate attorney to deal with this stepped-up basis issue? We have a similar situation and I'm wondering if we should just hire a professional rather than trying to figure it all out ourselves.

Don't forget that for some assets like real estate, you can often get historical appraisals done retroactively. We had a commercial property in my parents' trust, and we hired an appraiser who specialized in retrospective valuations to determine what it was worth when my dad died 9 years ago.

One thing that hasn't been mentioned yet is the importance of getting a Form 706 (United States Estate Tax Return) if one was filed for either parent. Even if the estate wasn't large enough to require filing, many attorneys recommend filing anyway specifically to establish the stepped-up basis values for inherited assets. If a Form 706 was filed for your father in 2016, it would contain the fair market valuations of all his assets as of his date of death - this becomes your stepped-up basis documentation. The same applies for your mother's estate in 2023. These forms are incredibly valuable for exactly the situation you're describing. If no Form 706 was filed, you might still be able to file a protective election or late-filed return in some circumstances. This is definitely something to discuss with a tax professional, as the rules can be complex and there are time limitations involved.