Parents passed a day apart. Their will includes establishing trusts dividing the estate to the siblings and setting up a trust for a disabled grandchild. Each sibling will become trustee of their trust. There are also IRA's for each parent that they had begun distributions from. These are being broken into IRA's for each sibling. What are we looking for in how this is set up to be sure we don't pay taxes on the full amount of the IRA? We understand we have to take a disbursment based on the annual disbursment the parents were taking, and that portion will be taxed. At what point are the assets in the trusts taxable?
Welcome. This site allows for a general response that will help you with your legal issue. If necessary, for specific advice contact a local attorney. This is an information request, not an answer. Is your question solely pertaining to the trusts? You seem to have a handle on the IRAs. Or do you also need help with the IRAs. Let me know so I can see if I can help. Thank you.
The wills call for trusts in which each sibling is both beneficiary and trustee. (Mom died first then Dad, so it still is one trust for each sibling) What does it mean when it says "contingent trust"?
Hi John: Contingent trust are created when certain condition exists at the person's time of death. This would include, for example, a trust for children to help manage the monies of a minor child, or for example to help oversee management of monies for a child if disabled at the time of death. Taxation of trusts can happen in various ways. For example, tax on income distributions depending on the type of assets in the trust, or possibly through capital gains. It is a good idea to look at the terms of the trust. Who is liable for taxes on income earned by a trust depends on who receives or retains benefits from the trust (i.e., the trust entity, the beneficiaries, the grantor, or the powerholder). Who is liable for taxes on income received by an estate depends on how the income is classified (i.e., income earned by the decedent, income earned by the estate, income in respect of the decedent, or income distributed to beneficiaries).In general, trusts and estates are taxed like individuals. General tax principles that apply to individuals also apply to trusts and estates. A trust or estate may earn tax−exempt income and may deduct certain expenses. These issues are complicated as you know. If you need further clarification, please hit reply and let me know prior to providing a rating. Otherwise, please provide a positive rating so I receive credit for providing you my services.
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