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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1264
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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In CA --if the primary residence is held in a trust with the

Resolved Question:

In CA --if the primary residence is held in a trust with the Settlor the owner after this wife passed away. Upon settlor's death what is the basis of the residence as of the date of death? Upon sale is the trust liable for Capital Gains Tax?
Submitted: 1 year ago.
Category: Tax
Expert:  Arthur Rubin replied 1 year ago.

Arthur Rubin :

Thank you for using Just Answer.

Arthur Rubin :

It depends on who owned the property before it was in the trust, and (if a living trust) whether the trust was revocable or irrevocable when formed. I would need to know exactly who had the right to remove the property from the trust, or to sell the property while it was in the trust, at all times.

Customer:

the srttlor for both

Arthur Rubin :

OK, the the trust is considered disregarded until the settler's death, and the basis for the property on sale is the value at the settler's death. You can find that value by a forensic appraisal.

Arthur Rubin :

This appears to be a badly designed trust, although it may be an "intentionally defective" trust before the death of the second party.

Customer:

No 2nd party

Customer:

Is any gain the trust realizes after death taxable income?

Arthur Rubin :

(Perhaps I misunderstood you as to who owned the trust.)

Arthur Rubin :

In general, any gain the trust realizes after death is taxable income, with the exception of when the trust is disregarded after the death of the 1st party, and the 2nd party (considered to own the trust) dies.

Customer:

The settlor passed the trust is to be distributed to hie 3 children

Arthur Rubin :

Exactly to whom the income is taxable may be unclear. It could be to the trust, or to the beneficiary.

Customer:

Trust sold the property and received the proceeds from the sale

Arthur Rubin :

As per my confusion, could you give names or identities ("husband", "wife") as to who owned and who controlled the trust, both before and after wife's death.

Arthur Rubin :

If the trust isn't disregarded (and I now believe it isn't), it's taxable to the trust unless the trust is closed in the same year as the sale.

Customer:

Trust created after wife's death. Husband had full control until his death 8/8/12

Arthur Rubin :

This is partially a question of law, but capital gains are usually considered "corpus" (the body of the trust) rather than "income", and "corpus" is taxed to the trust.

Customer:

trustee sold residence 4/26/13

Arthur Rubin :

(Interpolated reply. We are having two conversations here.) If Husband could have withdrawn money or property from the trust for his own benefit, the trust would have been disregarded, and the relevant "date of death" would be 8/8/12. Otherwise, the basis is as of the date of wife's death.

Arthur Rubin :

If the trust is closed in 2013, the capital gains would be taxable on the beneficiaries' 2013 returns; if not, it would be taxable on the trust's 2013 return.

Customer:

Thanks no wonder trusts & estates are such a big portion of the law

Arthur Rubin :

Sorry for my misunderstanding above. Have I answered your question adequately?

Customer:

At this point it looks like the trust should show a contingent liability for Capital Gains Tax on $121,000 +/- if the trust doesn't close this year.

Arthur Rubin :

OK. Exactly which state(s) the trust is taxable in may depend on the "residence" of the trustees and beneficiary, and where which state the trust is being administered in.

Arthur Rubin :

It no longer depends on the residence of husband (or wife).

Customer:

All CA

Arthur Rubin :

OK, the the trust is also taxable in CA, at the same rates as if it were an individual, except that the "personal" exemption is $1 (or $6 if the trust is combined with husband's estate for tax purposes.)

Arthur Rubin :

Federal tax has a compressed schedule, but the tax due is no more than 20%.

Customer:

So 29% Est should be close

Customer:

Thank you

Arthur Rubin :

I would say it would be high, but close. I don't have a tax program which applies estimated 2013 law, so I can't easily run the numbers.

Customer:

Excellent service

Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1264
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
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