Inherited trust taxes

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Manito
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Joined: Fri Nov 08, 2019 11:51 am

Inherited trust taxes

Post by Manito » Fri Nov 08, 2019 11:59 am

Hello,

We have several types of accounts including an inherited trust. Its 37% tax rate kicks in at only about $15,000. Is there any way to shift income from this trust account to our personal account which is taxed at a lower rate?

Thanks,
Manito

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prudent
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Joined: Fri May 20, 2011 2:50 pm

Re: Inherited trust taxes

Post by prudent » Fri Nov 08, 2019 1:02 pm

Can you choose to take the trust income as a distribution each year? In other words, does the trust allow you to take it?

sport
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Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Inherited trust taxes

Post by sport » Fri Nov 08, 2019 2:49 pm

prudent wrote:
Fri Nov 08, 2019 1:02 pm
Can you choose to take the trust income as a distribution each year? In other words, does the trust allow you to take it?
A related question: If someone is both the beneficiary of the trust and the trustee, would there be a problem if they took income distributions even if the trust did not allow it? If there are no other beneficiaries, or if they all agree, who would care? Would this perhaps somehow invalidate the trust?

fabdog
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Location: Williamsburg VA

Re: Inherited trust taxes

Post by fabdog » Fri Nov 08, 2019 3:16 pm

If the trust allows for income distributions, you can distribute from the trust, and income from Interest and dividends will come to you on a K1 from the trust, and be taxed on your personal return.

Capital gains and losses do not get distributed from the trust on a K1 to you, even if you remove principal. They only pass thru in the year the trust is final. So a trust holding mutual funds which kick off lots of capital gains distributions are stuck.

If this is the issue you are facing, are you required to keep the trust in force? If the trust assets can just be distributed to the beneficiaries, then they can deal with them depending on their individual circumstances (hold/sell). The cost basis of the trust goes with the assets

Mike

Gill
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Location: Florida

Re: Inherited trust taxes

Post by Gill » Fri Nov 08, 2019 3:32 pm

fabdog wrote:
Fri Nov 08, 2019 3:16 pm
If the trust allows for income distributions, you can distribute from the trust, and income from Interest and dividends will come to you on a K1 from the trust, and be taxed on your personal return.

Capital gains and losses do not get distributed from the trust on a K1 to you, even if you remove principal. They only pass thru in the year the trust is final. So a trust holding mutual funds which kick off lots of capital gains distributions are stuck.

If this is the issue you are facing, are you required to keep the trust in force? If the trust assets can just be distributed to the beneficiaries, then they can deal with them depending on their individual circumstances (hold/sell). The cost basis of the trust goes with the assets

Mike
Mike, whoa! Without going into all the details, capital gains are generally taxed to the beneficiary in the year principal is distributed to the beneficiary. Losses are distributed to the beneficiary in the final year of the trust. Furthermore, the basis of the assets distributed to the beneficiary may not be the same as in the hands of the trust if the basis is stepped up as a result of the termination.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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