Got one of those " A Friend Wants To Know" questions

[WhiteOleander]

I'm not sure I have all the info on this because this is a friend asking. Not a client.

She and her husband live on a ranch. His parents owned it and set up their wills as the generation skipping type of transfer. The husband is the generation that was "skipped". His kids are the actual beneficiaries.

As I understand it, now that both of the original owners have passed away, the ranch is held in this trust. The wills held that the husband (the skipped one) would receive "maintenance and support" from the proceeds of the ranch.

Question is, would this be taxable to the husband? Or is it considerd a bequest?
This is not an area I have done alot of work in. Hope someone here might have an idea.

Thanks.

[BOB W]

You may.......

..... have to look at the Trust agreement and Trust tax return. Is the Trust paying the taxes on the earning? Then the distributions may be non taxable.

[OldJack]

Someone has to pay income tax on the earnings of the trust. Only the trustee and the trust documents know if the trust is paying the tax or passing the income to your client to pay the tax.

Generally since the trust proceeds would normally be in the estate of your client at death, the trust must pay a generation skipping tax to make up for the fact that your client is not getting the proceeds and paying estate tax. Suggest you or your friend review, if not already, the trust with the attorney or trustee to see if you need to do anything for the trust and its taxes.