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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3995
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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My fathers house was placed in an irrevocable trust with me

Customer Question

My father's house was placed in an irrevocable trust with me and his stepson as beneficiaries. Health has forced him to move out and his house has been sold. What are the tax consequences of having the trustee distribute this money to the beneficiaries? The beneficiaries are also the beneficiaries of his will, if that makes any difference.
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Lane :

The trust retains the grantor’s capital gains tax exclusion under 26 U.S.C. § 121, which would not be available if the residence was gifted directly to the beneficiaries during the lifetime of the owner.

Lane :

So there's no capital gains TO the trust, and for the tax year that the money is distributed, the trust or the beneficiaries will pay income tax on the INTEREST the proceeds may have generated, depending on when the money is distribute during the respective tax years of the trust and the beneficiaries

Lane :

Make sense?

Lane :

This was probably set up this way JUST for this reason .. a very efficient way to be sure is to speak with the attorney that set up the trust

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Lane :

OK, question was sent at 12:02 today and it's not 12:31 and I still don't see you ... I'll move us to the Question and answer mode now.

Lane :

Again we can still go back and forth until you are satisfied, but if this HAS helped, I would appreciate a feedback rating of 3 (OK) or better (excellent, is ideal)… 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 :

Remember that the terms of the trust and the way it set up, grantor or not, etc will affect this ... if you'd like to provide more details, I'd bew glad to haelp you work through this

Lane :

Let me know

Lane :

Lane

Expert:  Lane replied 10 months ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 10 months ago.


Hi Pam,

... just checking back in here, as I never saw you come into the chat.

Please let me know if you have questions

Lane
Customer: replied 10 months ago.


I had to step away from the computer. Thanks for your help.

Expert:  Lane replied 10 months ago.

You're very welcome.

Do you know if this was set up as a grantor trust?

If so the trust maintains that Section 121 exclusion of capital gains.

let me know

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3995
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and other Tax Specialists are ready to help you
Customer: replied 10 months ago.

It says it includes a Residence Trust (his home - the grantor part?) and a Nongrantor Trust, however the Nongrantor Trust contains only $10.00, and I think that is a placeholder for his bank accounts which the lawyer thought we might put in the trust at a future date.

Expert:  Lane replied 10 months ago.

You NAILED it.

This was set up as a grantor trust so that the exclusion of gain right would be retained.
Expert:  Lane replied 10 months ago.
Hi Pam ,


I'm just following up with you to see how everything is going. Did my answer help?


Let me know,
Lane
Expert:  Lane replied 10 months ago.
Thanks so much

Let me know if I can help further

Lane

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