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Son In Law Died and need legal advice on the setting up of…

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Son In Law Died and...
Son In Law Died and need legal advice on the setting up of various trusts to not have tax consequences
Submitted: 4 months ago.Category: Finance
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Customer reply replied 4 months ago
My son in law recently passed and there are some financial things going on that I need to understand a bit more clear. The father is wealthy and is setting up a trust to have some of his family members contribute to so that our daughter does not have to worry about having to sell the house. In addition, they set up a trust for contributions to the family by friends, family and other associates My concern with these are possible tax issues for our daughter
Customer reply replied 4 months ago
HELLO??
Answered in 1 day by:
3/29/2018
Financial Professional: Andy4712, Accountant replied 4 months ago
Andy4712
Andy4712, Accountant
Category: Finance
Satisfied Customers: 775
Experience: Business and accounting graduate.
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Your daughter would be the beneficiary. Who is the executor or trustee. They would need to file the returns for the trust. Your daughter would get a k-1 that she would need to report on her federal taxes. Do you have specific questions?

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Financial Professional: Andy4712, Accountant replied 4 months ago

Here is some info for you:

https://thismatter.com/money/tax/trust-taxation.htm

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Financial Professional: Andy4712, Accountant replied 4 months ago

This link is probably easier to understand:

https://www.investopedia.com/ask/answers/101915/do-beneficiaries-trust-pay-taxes.asp

reg DePersio | Updated February 4, 2018 — 7:34 PM EST

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A:

Beneficiaries of a trust typically pay taxes on distributions they receive from the trust's income. However, they are not subject to taxes on distributions from the trust's principal. When a trust makes a distribution, it deducts the income distributed on its own tax returnand issues the beneficiary a tax form called a K-1. The K-1 indicates how much of the beneficiary's distribution is interest income versus principal and, thus, how much the beneficiary is required to claim as taxable income when filing taxes.

Interest Versus Principal Distributions

When a trust beneficiary receives a distribution from the trust's principal balance, he does not have to pay taxes on it: The Internal Revenue Service (IRS) assumes this money was already taxed before it was placed into the trust. Once money is placed into the trust, the interest it accumulates is taxable as income, either to the beneficiary or the trust itself. The trust must pay taxes on any interest income it holds and does not distribute past year-end. Interest income the trust distributes is taxable to the beneficiary who receives it.

Tax Forms

The two most important tax forms for trusts are the 1041 and the K-1. Form 1041 is similar to Form 1040. On this form, the trust deducts from its own taxable income any interest it distributes to beneficiaries. At the same time, the trust issues a K-1, which breaks down the distribution, or how much of the distributed money came from principal versus interest. The K-1 is the form that lets the beneficiary know his tax liability from trust distributions.

For additional info, see "Designating a Trust as Retirement Beneficiary" and "Pros/Cons of Naming a Trust as Beneficiary."

Read more: Do beneficiaries of a trust pay taxes? | Investopedia https://www.investopedia.com/ask/answers/101915/do-beneficiaries-trust-pay-taxes.asp#ixzz5B5r6qXRx
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