QUESTION
What is the tax liability to the trust or to the beneficiaries if they were to paid a share of the sale?
Asked on Jan 30th, 2013 on Estate Planning - Michigan
More details to this question:
I am the Trustee of an Irrevocable Trust that includes 3 parcels of land. There are 7 beneficiaries to the Trust. We are selling two of the parcels.
15 ANSWERS
2 Awards
As a trustee, you MUST consult counsel for this.
Answered on Feb 05th, 2013 at 3:32 PM
Business Law Attorney serving Livonia, MI
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Gerald A. Bagazinski
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The income tax liability will be determined if there is a gain or loss on the sale. The trust's basis in the property - net sales proceeds = gain or loss If you have any questions.
Answered on Feb 05th, 2013 at 3:32 PM
Commercial Contracts Attorney serving Boise, ID
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Peters Law, PLLC
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You need to talk with your accountant. If the trust does not have an accountant, hire one.
Answered on Feb 05th, 2013 at 3:31 PM
You start by examining the terms of the trust concerning distributions of income and principal. Second, consult with an attorney specializing in trust administration. Third, consult with an accountant who specializes in trust accounting.
Answered on Feb 05th, 2013 at 3:31 PM
Real Property Attorney serving Utica, MI
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Douglas A. Tull, P.C. Attorney at Law
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Are you sure it is an Irrevocable Trust - or was it a Revocable Trust that became irrevocable upon death of the grantor/trustee? If the latter, then the value of the land in the Trust receives a step up in basis to the value at date of death, and if the property is sold within a reasonable time - chances are there would be very little or no income tax liability.
Answered on Feb 05th, 2013 at 3:30 PM
Elder Law Attorney serving Hollister, CA
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Charles R. Perry
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You need to speak to a tax specialist, who can review all the facts surrounding the trust, and the basis for the property. It may be that there are capital gains taxes that must be paid. The trust would likely have to pay those taxes, and not the beneficiaries.
Answered on Feb 05th, 2013 at 3:30 PM
Do you mean the income tax on the sale of the parcels? Each shares in the tax in the same proportion that they share in the proceeds. You can pay the tax in the trust or the beneficiaries are each pay their own tax.
Answered on Feb 05th, 2013 at 3:29 PM
Estate Planning Attorney serving Wilmington, DE
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Reger Rizzo & Darnall, LLP
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That depends on several factors and when you file the Fiduciary Income tax returns you can take certain deductions then each beneficiary will get a K-1 and that will have the gain or loss to be included on your taxes.
Answered on Feb 05th, 2013 at 3:29 PM
Probate Attorney serving St. Louis, MO
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Edward L. Armstrong, P.C.
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Whatever tax attributes result from the sale of the property will pass through to the beneficiaries in proportion to their interests in the trust. So if there is long term capital gain on the sale, that will pass through. The trust will get a deduction for certain amounts distributed to beneficiaries to avoid "double taxation." Each beneficiary should be provided with a copy of the Form 1041 (Trust income tax return) along with Schedule K-1 indicating that beneficiaries share of the various types of income, etc.
Answered on Feb 05th, 2013 at 3:24 PM
Probate Attorney serving Newport, OR
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Minor, Bandonis & Haggerty P.C.
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The trust will file a tax return and report the sale. To the extent that income is realized, and is distributed to the beneficiaries, then the beneficiaries will probably be taxed on their share of the income. Do NOT try to do this tax return on your own, hire a CPA.
Answered on Feb 04th, 2013 at 8:11 PM
Estate Planning Attorney serving Marquette, MI
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The Wideman Law Center, P.C.
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There may be capital gains taxes on the sale. Either the trust can pay or each beneficiary can pay a portion from their share of the sale proceeds.
Answered on Feb 04th, 2013 at 8:09 PM
Tax Attorney serving Naples, FL
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Henderson, Franklin, Starnes & Holt, P.A.
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Generally capital gains are taxed at the trust level, not to the beneficiaries.
Answered on Feb 04th, 2013 at 8:09 PM
Trusts Attorney serving Sacramento, CA
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Law Office of Victor Waid
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You need to consult a tax accountant for that kind of expertise.
Answered on Feb 04th, 2013 at 8:09 PM
3 Awards
The estate should pay the tax on the sale. There may be capital gains. If the asset was depreciated there may be additional taxes. You should speak with a CPA to assist you with the tax issues.
Answered on Feb 04th, 2013 at 8:09 PM
Business Planning Attorney serving Livonia, MI
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Frederick & Frederick Attorneys at Law
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There is no way to know without more facts. What was the basis in the property? What is the sales price? Do any of the beneficiaries qualify to exclude the proceeds due to a personal residence exclusion? This is a question that you should run by a CPA.
Answered on Feb 04th, 2013 at 8:08 PM