Trust Income

[tpnl]

Man puts his home, personal possessions, IRA accounts, ect into trust. Man passes away March 2010. The IRA accounts are cashed out and deposited into the trust. The home and possessions are all sold and deposited into the trust.

Is the value of the home the cost basis of the gentleman and long term gain for the portion above that amount? The basis of IRA is the gentlemans basis and long term gain? Everything was valued at the DOD, but they are not passing through an estate, but a trust. So I am thinking these gains are taxable to the trust. The attorney is telling me the gains pass to the beneficiaries as deferred gains and are not taxable until the beneficiaries get rid of them. The beneficiaries are not receiving IRAs or property, but CASH because everything was cashed out or sold in the trust.

In your opinion, who is correct?

[Gretel]

Man puts his home, personal possessions, IRA accounts, ect into trust. Man passes away March 2010. The IRA accounts are cashed out and deposited into the trust. The home and possessions are all sold and deposited into the trust.

Is the value of the home the cost basis of the gentleman and long term gain for the portion above that amount? The basis of IRA is the gentlemans basis and long term gain? Everything was valued at the DOD, but they are not passing through an estate, but a trust. So I am thinking these gains are taxable to the trust. The attorney is telling me the gains pass to the beneficiaries as deferred gains and are not taxable until the beneficiaries get rid of them. The beneficiaries are not receiving IRAs or property, but CASH because everything was cashed out or sold in the trust.

In your opinion, who is correct?

You are addressing some tough issues. Since there is no estate tax in 2010 the total value of the estate is of importance to determine if any step up is available for the house sold.

I tend to agree that the gains are taxable to the trust with no pass through income if no distributions are received. I think it might be better to distribute the money and pass through the gains because tax rates on individual income is often lower then on a trust but if this is even an option depends on the trust document.

I am no expert in this area, just thinking out-loud and am sure you will get some better qualified responses.

[JON]

Revocable trust to Irrevocable trust

happens the date of death. An election can be made to have the Irrevocable file with the Estate in the first year(one 1041). That may give you time to make some distributions.

Supposedly the law yesterday may give you a choice of filing the estate with no estate taxes or using the estate laws in the act which is the $5/$10 million with step-up, your election. You seldom want to have IRAs taxed at the Trust rates they get to the max rate quick. You have lots of decisions. good luck.

[appelman]

Determination of basis is the same.

The fact that it flows to an irrevocable trust does not change the calculation of basis. If the property is transferred to the trust, the trust will carry it at whatever basis is determined by the rules in effect at date of death. Whether it pays tax on any capital gain when it sells the property depends on whether it retains the gain or passes it through to the beneficiaries. This is usually determined by the terms of the trust. Only the beneficiary of the IRA can cash it out. Is the irrevocable trust the beneficiary? If so, it will be taxed on the taxable portion of the IRA, unless it passes it through to the beneficiaries. For this reason, it is generally considered poor practice to make an estate or trust the beneficiary of an IRA or pre-tax retirement account.

[tpnl]

Thank you

Great info. It is always good to bounce off these things to clear up some cloudiness.