Hi, look like finally made its way to me...
Sorry I received no notice (you may want to mention this to customer service ... I was told that I would get a lock on any questions where I was requested)
OK, to the questions:
IS THERE A KIND OF TRUST THAT A HUSBAND AD WIFE CAN DEED A PRIMARY RESIDENCE TO BEFORE ANY SPOUSE DIES AND THAT WILL GIVE A STEPPED UP BASIS TO THE TRUST. IF YES: 1. WHAT IS THIS TRUST CALLED?
The way the trust (any trust that is irrevocable) will get a step up, is if it received the asset
. Think of any irrevocable trust as a person .. it has it's own tax brackets, pays its own taxes on a 1041 (just like a person does on a 1040) and just like any other entity receiving an asset at death, gets a step-up in basis.
This is simply because it is a separate taxable entity (grantor trusts and other revocable trusts - where the grantor can simply revoke everything is just a pass-through
, an alter-ego of the grantor, all taxes pass through and are paid BY the grantor) but an IRRevocable trust is like a separate person, so it gets a step up. Lots of different types of trusts are irrevocable, but it's the irrevocable part, that allows for the trust to get a step up a death, just like any other separate entity.
2. WHAT TAXES DOES THE TRUST HAVE TO PAY DURING THE LIFE OF THE HUSBAND AND WIFE?
Again ... IF ... the trust IS irrevocable it pays taxes on it's 1041 just like a person pays taxes on their 1040. If the trust owns assets that generate interest
, it pays income taxes
on that interest, just like a person would. The only time it doesn't pay taxes is if the income
(DNI, distributable Net Income
) is distributed to a beneficiary
(through a k-1). IN that case the beneficiary pays the taxes.
3. UPON THE DEATH OF THE FIST SPOUSE,IS THERE ANY TAXES THE TRUST HAS TO PAY?
Again, it all has to do with whether assets have been re-titled to the trust (either through gift, or through sale, or through inheritance) The trust will pay taxes on any income it has IN IT's NAME - owned by the trust - for a tax year ... again, that is NOT distributed to a beneficiary.
4. WHEN THE TRUST SELLS THE HOUSE THREE YEARS FROM THE DEATH OF THE FIRST SPOUSE, WHAT TAXES DOES THE TRUST HAVE TO PAY ?
If the trust received the asset through inheritance, it will have received a step-up in basis, and will only be responsible for the gain in value from the date of death of the person that left it to the trust to the date of sale. ... If the trust received the asset through gift (while the first to die was still alive) the basis will be the carryover basis, just as any other giftee ... If the trust bought the asset the basis will be that purchase price, plus any improvements made by the trustee, while the asset was owned by the trust.
If you keep in mind that the terms of a trust determine whether it's irrevocable (or becomes irrevocable at death, or some other event, such as the credit
shelter trust we were discussing before) you begin to see that it's about the irrevocable nature (one of MANY possible attributes of a trust) that makes its tax treatment very similar to a person (or a C-Corp), you'll start to see the pattern. It becomes a separate taxable entity.
There are a multitude of trusts out there, but it's the fact that it is, or has become, a separate entity, irrevocable, with the ability to own assets and pay taxes, that causes it to be treated as a fictitious person, an entity (with it's OWN tax implications, its own ownership) rather than all ownership and taxable events automatically just flowing through to the grantor/owner as a conduit.
Hope this helps