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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10097
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My mother is elderly and has a trust. From a tax perspective

Customer Question

My mother is elderly and has a trust. From a tax perspective is it better to distribute assets to her hiers before her death?
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Hi,

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I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from mercer University’s Stetson School of Business and Economics, as well as CFP® and CRPS designations. I can help here.

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To answer that question, I'd need a little more information...things like:

  • Is the trust revocable or irrevocable
  • Are her assets at a level (greater than $5,450,000) such that there would be an estate tax at her death
  • Are the assets potentially shielding the assets from being captured by the state if she were to need Nursing home assistance from Medicaid?

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Generally, depending on what's IN the trust the assets that are creating income (if if's an irrevocable trust) COULD very possibly be being taxed at higher rates that they would to the trust beneficiarues ... (but again, as you can see ffrom above there may be reasons you'd want to KEEP the money in the trust and shield the assets from the kinds of things that may reduce them MOE so that there's more for the beneficiaries at death

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Can you tell me more?

Expert:  Lane replied 10 months ago.

One big "heads-Up;" If someone gives substantial property, such as stocks or real estate, to their children before death, the children assume the basis in the property of the giver. (This if called carryover basis).

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But if the asset is inherited, the basis is stepped-up, (to the fair market value of the property at the decedent's date of death).

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For example, if your mother bought a house for $15,000, and she gifts it before she dies this becomes the children’s basis in the property....

If they later sell the house for $150,000, they’ll owe capital gains tax on the difference between $15,000 and $150,000. If you wait and let her pass the trust will get a step-up in basis on the property.

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Your basis will be the value of the property at the time of her death.... so that if you sell the property (house, stocks, whatever - any capital asset) fairly quickly, befoe prices have had time to go up ... you will have no capital gains tax at all.

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Expert:  Lane replied 10 months ago.

So, again, it really depends on the nature of the assets (are they producing a lot of income that would be taxed at a lower individual rate)... AND the nature of the trust. If it's irrevocable (pays taxes at trust rates - MUCH higher than individual rates). If it's revocable and just being taxed to the older person who may have relatively low income anyway ....

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But if the assets are highly appreciated from the time they were purchased or passed to her and would be given that step-up in basis at death it may make sense to wait .... to lower that eventual capital gain to the beneficiary when subsequently sold

Expert:  Lane replied 10 months ago.

Hope this has helped … let me know if you have questions

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If this HAS helped, (and you don’t have additional questions on this), I'd really appreciate your positive rating … (by using the stars on your screen) … … That’s the only way I'll be credited a portion of what you've paid JustAnswer.

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Thank you,

Lane

Customer: replied 10 months ago.
Hi Lane,Let me find out if it is irrevocable trust or not. Assets are not over 5 million. I plan to do a call with you shortly. I am out of town now but return Friday.Robert
Expert:  Lane replied 10 months ago.

Sounds good Robert.

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I'll be here

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Lane

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