Timing Issue

[NotEasy]

Taxpayer passed away a few years ago. Her assets have been placed in a trust and to be distributed to her two daughters 50-50. Let's call them Susan and Jane.

Now Susan wants to buy the 50% assets of Jane.

My question is:

What difference would it make taxwise if

(1) Susan buys Jane's 50% of the assets while the assets are still in the trust

or

(2) Susan buys Jane's 50% of the assets after the assets have been distributed to them?

Thank you for your input.

[Kram BergGold]

Is it Better, is the wrong Question

First read the trust document. My guess is there will be restrictions on distributions. If so, then
my feeling is, they need to consult a lawyer to figure out how to get around the restrictions on distributions.

[NotEasy]

First read the trust document. My guess is there will be restrictions on distributions. If so, then
my feeling is, they need to consult a lawyer to figure out how to get around the restrictions on distributions.

Thank you for your answer Kram.

Let's assume there will be no restrictions and the assets can be distributed to them either way. Therefore, the question is strictly about the tax consequence only.

[Lion]

Difference to the buyer or to her sister or to the trust?

[NotEasy]

Difference to the buyer or to her sister or to the trust?

To everyone.

But if you just want to talk about one of the parties, it will really help too.

[NotEasy]

Someone in the know please help out...Thank you in advance.

[Gary2]

(1) Susan buys Jane's 50% of the assets while the assets are still in the trust

Susan can't buy Jane's assets while they're in the trust because Jane doesn't have any assets, the trust does. And without knowing the nature of the assets and what the trust documents (or state law) says about selling part of the corpus, there isn't enough information to give the sort of answer you want.

One conceivable outcome is that if the trust sells half the assets to Susan, the trust might have to recognize the gain and pay tax on it (ouch). But another might be that it can or must distribute the proceeds 50/50, while the remaining assets will still need to be distributed 50/50, leaving Susan with only 3/4 of the assets and Jane with 1/4, and they each have taxable income for half the gain. Or, the one that you want, is that the trust is allowed to distribute the entire proceeds to Jane, giving her the tax bill, while distributing the remaining assets 100% to Susan.

[Lion]

As has been said, read the trust document.

[appelman]

My intuition tells me "Don't go there!"

It sounds like you may be asking for a mess. And I don't see how you can come out ahead. Just distribute the assets as per the trust document, and let the beneficiaries take it from there.

[Burke]

It sounds like you may be asking for a mess. And I don't see how you can come out ahead. Just distribute the assets as per the trust document, and let the beneficiaries take it from there.

That is the correct answer. Distribute assets 50/50 according to the trust document requirements as to when and how, and then the two bene's can do whatever they like. The one whose assets are "purchased" by consideration ($$$$) has a gain or loss. The one doing the purchasing can set up her own trust, if she wants that protection.

[Gary2]

I agree with the previous two, though these days putting assets into an LLC is simpler than a trust if the goal is liability protection (as opposed to estate asset protection).