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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11587
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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An irrevocable trust was formed in the state of NY, how is

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An irrevocable trust was formed in the state of NY, how is a distribution from the irrevocable trust handled from a tax stand point? Is that distribution to a beneficiary of the irrevocable trust considered a gift or and advancement of inheritance?

NPVAdvisor : Hi
NPVAdvisor : IF the property in the trust was gifted TO the trust (which is typical, in order to get the property out of the grantor's estate) ....
NPVAdvisor : Ten yes, the distribution is a gift to the beneficiary ...
NPVAdvisor : NO income taxation to the beneficiary BUT the beneficiary has a carryover basis
NPVAdvisor : for capital gains purposes when they dispose of the asset
NPVAdvisor : If it's cashe then the current calue is the basis, and the trust would have been paying income on any dividends
NPVAdvisor : but for stocks, land, and other capital assets, you have a deferred gift there
NPVAdvisor : with a carryover basis
NPVAdvisor : Hope this helps
NPVAdvisor : Lane
NPVAdvisor : Questions?
Customer: What classifies how the asset when placed in an irrevocable trust is gifted or placed in trust?
NPVAdvisor : By the way when I said "If it's cashe then the current calue is the basis, and the trust would have been paying income on any dividends," I should have said interest - for cash, It WOULD however have been paying tax on an dividends from any STOCKs as well
NPVAdvisor : It's either gifted or sold
NPVAdvisor : If nothing was given back to the grantor in exchange for the assets, then (as with any other transaction) its a gift
NPVAdvisor : And it would be VERY atypical to sell it to the trust, because then there would have been the same value back into the estate
Customer: So the only way to place assets in trust is to sell them or gift htem to the trust, then it is gifted to the benficiary at any time the trustee deems
NPVAdvisor : typically, its simply given to the trust (in order to get it out of the estate, for either estate tax OR edicaid purposes)
NPVAdvisor : yes, you have it
NPVAdvisor : THat's trust with ANY asset transfer between any two entities ... people, irrevocable trusts, C-Corps
NPVAdvisor : if you don't get anything back for it (and don't expect anything back, as in a deferred sale) it's a gift
NPVAdvisor : sorry for the typos... "That's TRUS, with any transfer ...
NPVAdvisor : TUE
NPVAdvisor : TRUE
NPVAdvisor : sorry
Customer: they can then GIFT it to the beneficairy. Hence a gift tax return must be filed on the grantors part for any dispercement from the trusts
NPVAdvisor : that's right
NPVAdvisor : again, if its in the terms of the trust to disperse, or if the discretion of the trustee to distribute, then, again, it's automatically a gift to them because they didn't give the trust anything for it
Customer: we have an issue that my dad was a NY resident when the trusts were formed and is now a TN resident. A gift was given from the trust in2012 to a benificairy and my dad just received a TN dept of revenue statement asking for the taxes due on that gift. Since 2012 TN has done away with the gift tax issue
Customer: Technically my dad gifted the assets and got nothing in return and when it is disperced from the trust it is a gift from the trust to the benificary not and advancement on inheritance.
NPVAdvisor : The law was effective for gifts after 1-1-2012 wan;t it?
NPVAdvisor : wasn't it?
NPVAdvisor : so there should be no tax
Customer: Sorry that was 2010
NPVAdvisor : From TN dept of revenue:
NPVAdvisor : Please note that taxpayers giving gifts prior to January 1, 2012 may be subject to Tennessee's gift tax.
NPVAdvisor : Also see this:
Customer: Another issue is was my dad really a resident of TN at that time he went back to NY for a year
NPVAdvisor : Exemptions Per Donee:Date of Gift Class A Class B2001 and earlier $10,000 $3,0002002 through 2005 $11,000 $3,0002006 through 2008 $12,000 $3,0002009 through 2011 $13,000 $3,0002012 and after Not applicable - Tennessee Gift Tax RepealedClass A includes husband, wife, son, daughter, lineal ancestor, lineal descendant, brother, sister, son-in-law, daughter-in-law, or stepchild. If a person has no child or grandchild, a niece or nephew of such person shall be a Class A donee (Tenn. Code Ann. Section 67-8-102(1)).Class B is all others.
NPVAdvisor : As long as his domicile was in TN , lived then and intended to go back (having done so now) the NY thing should not be an issue
NPVAdvisor : but again, if the gift was done in 2012 as you said, then there would be no TN gift trax
Customer: Sorry gift given in 2010 He had no domicile in TN, he stayed with me for a few weeks but did not have a residence in TN
Customer: Any answer?
Lane and other Tax Specialists are ready to help you


Thanks for the feedback.

I just wanted to be sure you saw that last answer.

Again, if he was not domiciled in TN at the time, then he should own no tax.

Typically you can show the bills dated with the 2010 date or tax returns showing a NY address.

The most efficient route might be to call TN and tell them that he was not a TN resident in 2010 and ask what they need for documentation.

Hope this helps

Thanks again,
Lane