What Happens to the Cost Basis When Moving Stocks to a Trust Account?

Cost Basis

• Cost basis is the amount that you paid for an investment. For stocks, cost basis is the amount you paid when you bought the stock, including any fees or commissions. Cost basis is an important number because it helps determine the amount of your gain or loss. This becomes particularly relevant when you sell a stock or other asset, as you must generally pay tax on the amount of any gain. You can also benefit from losses by using them to help offset any taxable gains you may have. Without a record of your cost basis, you will have a difficult time trying to determine the amount of your gain or loss.
  
  

Moving to Your Trust

• If you create a trust, you generally want to place all of your assets in the trust so they can benefit from the estate-planning particulars of the trust. With stocks, the process is usually as simple as providing your financial-services firm or broker with written instructions to transfer your stocks into your trust. Regardless of the estate-planning implications, for cost-basis purposes, you are simply moving stocks from one account to another. As a result, your cost basis does not change when you move stocks from your personal or joint account into your trust account.
  
  

Moving to Another Trust

• If you are moving your stock to a trust account that is not your own, the rules regarding cost basis change slightly. For gifts and donations, the recipient usually keeps the same cost basis as the donor. For example, if you give stock worth $10,000 to your local charity's trust account and you only paid $8,000 for the stock, the charity would retain the original $8,000 cost basis. However, if your stock has fallen in value at the time of your transfer, the charity would use either your original cost basis, if it later sells the stock at a gain, or the fair-market value at the time you transferred the stock, if it later sells the stock at a loss. In this example, the charity would use the $8,000 cost basis if it sells the stock for more than $8,000. If you transferred the stock at a value of $6,000 and the charity sells the stock in the future for $5,000, it would use the $6,000 value as its cost basis.
  
  

Inheritance

• If your stock transfers to the trust account of an heir upon your death, then a different cost-basis rule applies. Heirs are allowed to use the fair-market value at the time of death as their cost basis. For example, if you own stock worth $20,000 at the time of your death, your heirs would report that $20,000 as their cost basis, even if you only paid $5,000 for the stock. This process is known as the "step-up in basis" upon death.