Trust Income Inheritance - Taxable?

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jimcrawford01
Posts: 87
Joined: Mon May 19, 2008 5:23 pm

Trust Income Inheritance - Taxable?

Post by jimcrawford01 »

I am the Personal Rep for the estate of my deceased step dad.
He had a Revocable Trust that owned an Interest Annuity.
He bought this Annuity for $150,000 and at the time of his death, was surrendered for $230,000.
So, an $80,000 gain that has not been taxed.
If the estate pays the tax on this (before disbursement), I assume it would be taxed at a higher rate, higher than if the $$ is disbursed to the beneficiary who would then have $80,000 additional income from the K-1 to wring out on their own 1040.
Some folks have asked, why should an inheritance be taxed? My answer is that the $$ was in a tax sheltered account and gains are taxed upon withdrawal. Have I got that right?
Hard to swallow an unplanned for income increase of $80,000.
bsteiner
Posts: 5544
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Trust Income Inheritance - Taxable?

Post by bsteiner »

If you go to the free dinner seminar and you buy the annuity, the living trust, the timeshare, or the bridge, not only did you pay for your free dinner, but you paid for the free dinners for everyone else in the room.
Gill
Posts: 7096
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Trust Income Inheritance - Taxable?

Post by Gill »

You've got it right. Capital assets receive a stepped up basis, but ordinary income assets still retain their ordinary income characteristics and remain taxable following death. The mistake may have been to pull all the incoome out at one time.
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
Topic Author
jimcrawford01
Posts: 87
Joined: Mon May 19, 2008 5:23 pm

Re: Trust Income Inheritance - Taxable?

Post by jimcrawford01 »

bsteiner wrote:If you go to the free dinner seminar and you buy the annuity, the living trust, the timeshare, or the bridge, not only did you pay for your free dinner, but you paid for the free dinners for everyone else in the room.
Well, you answered a question but not exactly the one that I asked. A simple error.

Typically, I find your responses to be spot on, clear and understandable and VERY helpful.

Respectfully, I will ask that you return to my question. Your input is appreciated. Thanks.

Jim
Topic Author
jimcrawford01
Posts: 87
Joined: Mon May 19, 2008 5:23 pm

Re: Trust Income Inheritance - Taxable?

Post by jimcrawford01 »

Gill wrote:You've got it right. Capital assets receive a stepped up basis, but ordinary income assets still retain their ordinary income characteristics and remain taxable following death. The mistake may have been to pull all the incoome out at one time.
Gill
Thanks for the response.

Trusts, Annuities, Life Insurance etc - all very confusing.

But many lessons learned!

Jim
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