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Inheritances aren't subject to income tax; it has nothing to do with relationship class the recipient is in; that only has to do with the application of the Inheritance Tax.
Well, you said that there was no income in the estate, but you didn't say what the estate consisted of. It must have included some "Income in Respect of a Decedent" which would mean that there was an probably an IRA or Annuity or something similar in the estate that the decedent hadn't paid any taxes on as of his/her date of death. In those cases the beneficiaries has to pay the income taxes.
What were the nature of the assets in the estate?
Well, that's your answer as I suggested. There has been no income tax paid on those assets.
What "loop holes"?
If the Trust had paid the taxes it would have been at the 39.6% rate or a total of over $160,000.
OK, great. Please remember to rate my response.
Thanks very much,