Ok, here's the deal my Aunt set up a trust with her house being the trust.After her death the house was sold and the money divided between the nieces and nephews. Each of us got 95 thousand dollars. I have income consisting of retirement income,social security and a minimum required distribution of a 401K that totals 58 thousand. What form do I need to report the 95 thousand on ? Is it all taxable or partly taxable?
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inheritance
- Thread starter calibob1
- Start date
merc123
Senior Member
With that dollar amount I would invest in a CPA (not HR block) instead of a forum tax expert. There are some CPAs on here but can't remember who they are.
cotinpatch
Member
Certainly you should consult a tax expert but I believe that at the point at which the asset(s) of the trust were liquidated the taxes should have been paid by the trust prior to distribution to you and your cousins. Not sure you need to report inheritance income...?
It's free money - no taxable event.
Doesn't matter. The taxable event occurs at the estate level for both the Feds and CA. When the decedent dies all their assets and liabilities "pour" into their estate ( a trust). The assets inside the estate are valued at FMV as of the date of death (or the alternate valuation date, whichever the estate's executor elects to use) and if the aggregate FMV minus aggregate liabilities exceeds the unified estate and gift tax credit the remainder is taxable to the estate, not to the beneficiaries. If their aggregate value minus aggregate liabilities does not exceed the unified credit, there is no tax liability. The FMV established at the date of death becomes the new "stepped up" tax basis (value) to the estate for those assets.
Once the estate is settled and any estate or gift tax is paid by the estate the remaining assets of the estate are distributed to the beneficiaries and they take the assets at their new stepped up tax basis (FMV) without any tax liability until they dispose of the asset in a sale. Since he received cash he would not be taxed further on that cash.
There are lots of other rules that apply (naturally) but that is the basics.
codocil -I am assuming the trust is a simple grantor trust in the form of a QPRT - "Qualified Personal Residence Trust" with any and all estate or gift taxes having been paid at the estate or trust level. The trust document probably has a clause requiring the assets of the trust to be liquidated upon the decedent's death and the corpus distributed to the beneficiaries sans tax liability. That's the way I would do it if I were the grantor.
It is possible some of the distribution represent a distribution of taxable income to the beneficiaries. If so, you will receive a Schedule K-1 (Form 1041) Beneficiary Share of Income, Deductions, Credits, etc. detailing the amount and character of the taxable income being distributed which you are required to report and pay tax on your individual income tax returns for IRS and CA.
My guess not knowing all the facts is this is solely a distribution of the trust's corpus and not taxable as such.
It is possible some of the distribution represent a distribution of taxable income to the beneficiaries. If so, you will receive a Schedule K-1 (Form 1041) Beneficiary Share of Income, Deductions, Credits, etc. detailing the amount and character of the taxable income being distributed which you are required to report and pay tax on your individual income tax returns for IRS and CA.
My guess not knowing all the facts is this is solely a distribution of the trust's corpus and not taxable as such.
