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 Stephen G. Your Own Question
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6228
Experience:  Extensive Experience with Tax, Financial & Estate Issues
30050794
Type Your Tax Question Here...
Stephen G. is online now
A new question is answered every 9 seconds

I am the primary beneficiary of a trust fund set up by a relative

This answer was rated:

I am the primary beneficiary of a trust fund set up by a relative 20 years ago.
The term of the trust which is in about 95% mutual funds was that I receive
the corpus when another relative dies. They died last week. There was already
a death tax on the bulk in 93' when there was inheritance tax. What is being
transferred to me are securities presumably with their cost basis. Each year
up until now a trustee has had the taxes completed ( yearly ). What tax implications do I need to consider other than what tax I will pay IF I sell any of these securities in the future? The trust was originally taxed and set up in Louisianna and I live in California.
Thank you. PK

Stephen G. :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Stephen G. :

Were you or the other beneficiary receiving the income from the trust over the last 20 years?

Stephen G. :

Since CA does not now have an inheritance tax, there would be no tax that you would be subject to upon receipt of the trust principal.

Stephen G. :

As you stated, you should be furnished with the income tax basis of the securities transferred to you and that would be your tax basis for purposes of computing capital gain or loss upon sale of the securities.

Stephen G. :

You will also be subject to the income generated by the investments you inherit & if the investments consist mainly of mutual funds, you should make sure that you keep all of the mutual fund statements on a going forward basis.

Stephen G. :

If the dividends (either ordinary or capital gains) are re-invested, they will never-the-less be taxable to you when paid; if the dividends are re-invested each re-investment is a purchase of additional mutual fund shares and must be accounted for as such in your records.

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Stephen G. :

Questions?

Customer:

Stephen, thank you for the answer, I will look to you for other tax queries in the future. Would you terribly mind
including this follow up question to the information you gave me.

Customer:

The securities when distributed actually go to 2 people, me and someone else, i.e. 150 shares, I get 75. I presume that my self reporting this fact and paying only half of the tax due for 2013 prior to dissolution is sufficient. If the official dissolution and transfer of securities for example could be September 15, 2013. I take this to mean there will be a calculation for 2013 for the entire trust up to 9/15 from which the other beneficiary and I will split, and there will be a separate calculation for my own taxes for everything after 9/15. The up until 9/15 trust tax will be paid to the tax id of the trust, is this all correct?

Hello,

Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find another Professional to assist you right away. I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you. Thank you!

Best,

Rachel

I'm afraid I don't know what you are referring to when you say:

"I presume that my self reporting this fact and paying only half of the tax due for 2013 prior to dissolution is sufficient."

When the securities are distributed to you, there is no "self-reporting" or payment of any tax.

If the securities earned income while in the final year of the trust, in theory, your share of that income (for the entire year) would be passed on to you as your income tax rate should be lower than the trust's income tax rate. Any income taxable to you in that manner would be reported to you on the K-1 that the trust will furnish you after the end of the taxable year.

After the securities have been distributed to you and the title is transfered to you, the mutual fund or other security will report any income paid to you (that you are responsible for paying the income taxes on) to you & the IRS directly.

Hopefully this clears up any question you have with respect to the income tax responsibility for the trust assets in the year that they are distributed to you.
.
.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6228
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 5 other Tax Specialists are ready to help you