This question pertains to funding a bypass trust to avoid MD estate taxes.
By way of simple example: couple jointly holds, within a family trust, 100 shares each of company ABC and XYZ which have a combined FMV of $50,000 on the day the husband dies.
ABC has a high cost basis and XYZ has a low cost basis.
The trust directs a bypass to be funded at death of first spouse. Nothing has been stepped up yet.
Question: Will the law allow the wife to move the low basis XYZ and enough of the high basis ABC to the bypass as long as it sums to $25,000? If so, she could then step up only the shares that went to the bypass. The end result is that she is left with high basis ABC shares.
Or, must she move one half of each position to the bypass and then step up only those shares?
The estate lawyer tells me that we can pick and choose assets and move and step up the low basis shares. The custodian says you don't get to pick and choose. It seems that picking only low basis shares would be a loophole that would have been closed long ago.
Any thoughts?