Question #12: What is a “beneficiary letter”?

Each beneficiary of the DBSI Liquidating Trust or the DBSI Real Estate Liquidating Trust should have received a “beneficiary letter” that included the value of your interest in the applicable Liquidating Trust. (This beneficiary letter was sent separately from the Grantor Tax Letters (a/k/a K-1 Equivalent) that report your annual share of income and/or loss as a beneficiary of the applicable Liquidating Trust.)

The amount listed in your “beneficiary letter” as “your beneficial interest in” the assets of the Liquidating Trust is the amount you should use as your amount realized in determining and reporting the tax effects of the implementation of the Plan as of the Effective Date. Unless and until you receive further information from the Liquidating Trustee, the amount listed as your percentage interest in the trust assets will determine your proportionate share of the Liquidating Trust’s tax items to be reported on your return. You should provide a copy of this letter to your tax return preparer.

If your investment was not held by an IRA (or other nontaxable trust) you would have received a tax deduction for the difference between your investment and the amount in your beneficiary letter. The value in the beneficiary letter would become your new tax basis in your investment. You should not have to pay taxes on the distributions received from the Liquidating Trust until you have recovered that basis in your investment. Each person’s tax situation is different, so please contact your tax advisor to determine if and/or how this information may apply to your particular situation. Note that your basis in your beneficiary interest is adjusted annually for income or loss passed through to you by the trust as set forth in the annual “grantor letter”.