How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lane Your Own Question

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4064
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

I have had a trust with a bank in MS for many years. My trust

Resolved Question:

I have had a trust with a bank in MS for many years. My trust is now less than $200,000 and I plan to terminate it. I live in Tx and need to know if I will have any tax consequences on the money. I haven't paid any taxes on the income from this trust because I have been drawing my monthly income from the principal.
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.


Good morning. Can you tell me whether this is a revocable or irrevocable trust? Were you the grantor of the trust? Are you the trustee and beneficiary now? Has the trust been filing tax returns and paying the tax on the income? Thanks.
Customer: replied 1 year ago.
This is an irrevocable trust and controlled by Regions Bank as Trustee. I have spoken with my Trustee and he says that they can hire an attorney for me to have it terminated.

Yes, the trust has paid taxes on trust.

Myself, and my two sons are the beneficiaries of the trust.
Expert:  Richard replied 1 year ago.
Thanks. I'm going to opt out so an expert with more specific expertise in your area can address this for you. Please do not respond to this post as it will only slow the process of another expert picking this up for you. Take care.
Expert:  Lane replied 1 year ago.

Hi,

As the trust is irrevocable, the trust would have been paying income taxes on the income not being distributed.

Here's the basic outline of how that happens

The estate’s or trust’s taxable income is computed using the following formula:

Gross income

Less

Deductible trust expenses

Less

Personal exemption amount

Equals

Taxable income before distribution deduction

Less

Distribution deduction

Equals

Taxable income

Times

Applicable tax rates

Equals

Tax liability


As the trust pays taxes and you pay taxes on any distributed income, and you are a beneficiary the result will affect you either way ... you may actually want to pay income taxes yourself(you and you sons) because personal tax brackets are much higher (lower taxes on the same amount of income) for individuals that trusts.

Look at the difference here between trust tax brackets and tax brackets for Married FIling Jointly:

Trust, 2013:

If taxable income is: The tax is:

Not over $2,450 15% of the taxable income

Over $2,450 but $367.50 plus 25% of
not over $5,700 the excess over $2,450

Over $5,700 but $1,180 plus 28% of
not over $8,750 the excess over $5,700

Over $8,750 but $2,034 plus 33% of
not over $11,950 the excess over $8,750

Over $11,950 $3,090 plus 39.6% of
the excess over $11,950

Married Filing Jointly:

 

 


  • 10%
    on taxable income from $0 to $17,850, plus
  •  

     

  • 15% on taxable income over $17,850 to $72,500, plus
  • 25% on taxable income over $72,500 to $146,400, plus
  • 28% on taxable income over $146,400 to $223,050, plus
  • 33% on taxable income over $223,050 to $398,350, plus
  • 35% on taxable income over $398,350 to $450,000, plus
  • 39.6% on taxable income over $450,000.
  •  


    Essentially both entities file a tax return (beneficiaries and trusts)

    Any capital gains or income will not be taxed twice.... If the trust distributes it takes a deduction and the beneficiary pays the tax.

    He real work to be done is to run things both ways to see which has the lower net tax cost (because both the trust's taxes - less to pay out to you - and the beneficiaries' taxes - same income taxes at a lower rate it the trust distributes it - will have a effect on the beneficiaries)

    To answer your question - Yes there will be tax effect, either way, but the analysis work you should have the trustee do, is to see whether distributions should be made before termination, because both the beneficiaries and the trust will have a tax return to do for 2013.

    Hope this helps

    Lane
    Customer: replied 1 year ago.
    Will the fact that I am 72 and haven't owed any taxes for years affect what I will owe in taxes?
    Expert:  Lane replied 1 year ago.

    No,as long as you have not actually owed and been below the threshold for filing.

    Honestly, my intuition says that if any flags are raised at all. IRS will see that you have been the beneficiary of a trust that HAS been paying taxes for many years ...

    ... and that will "connect the dots."

    THis is not all that atypical.

    Lane

    If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

    HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

    Lane, JD, CFP, MBA, CRPS
    Category: Tax
    Satisfied Customers: 4064
    Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
    Lane and 6 other Tax Specialists are ready to help you
    Expert:  Lane replied 1 year ago.


    Make sense?

    Lane

    JustAnswer in the News:

     
     
     
    Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
    JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
    Web sites like justanswer.com/legal
    ...leave nothing to chance.
    Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
    Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
    I will tell you that...the things you have to go through to be an Expert are quite rigorous.
     
     
     

    What Customers are Saying:

     
     
     
    • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
    < Last | Next >
    • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
    • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
    • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
    • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
    • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
    • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
    • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
     
     
     

    Meet The Experts:

     
     
     
    • Wallstreet Esq.

      Tax Attorney

      Satisfied Customers:

      570
      10 years experience
    < Last | Next >
    • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

      Wallstreet Esq.

      Tax Attorney

      Satisfied Customers:

      570
      10 years experience
    • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

      Wendy Reed

      Enrolled Agent

      Satisfied Customers:

      3052
      15+ years tax preparation and tax advice.
    • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

      Mark D

      Enrolled Agent

      Satisfied Customers:

      985
      MBA, EA, Specializing in Business and Individual Tax Returns and Issues
    • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

      Richard

      Tax Attorney

      Satisfied Customers:

      3229
      29 years of experience as a tax, real estate, and business attorney.
    • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

      Megan C

      Certified Public Accountant (CPA)

      Satisfied Customers:

      6121
      Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
    • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

      jgordosea

      Enrolled Agent

      Satisfied Customers:

      2783
      I've prepared all types of taxes since 1987.
    • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

      MequonCPA

      Certified Public Accountant (CPA)

      Satisfied Customers:

      2231
      CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.