Q. So, if the trust is irrevocable then the proceeds from the sale become the asset in the trust and when grandma passes my aunt and mother inherit, correct? Is there a tax on this?
A. I would guess not. Though whether there are capital gains taxes due on the sale of the property is another question better left for a tax professional to answer.
Q. If the trust is irrevocable then my grandmother can gift up to $11k per individual per year tax free?
If she gives my mother $100k and my aunt $100k are there taxes on this as income?
A. If the trust is irrevocable, then your grandmother has no rights to distribute any of the assets held in the trust. Now, your grandmother can gift $11K per individual (tax free) from her personal holdings, but I do not believe she can dip into the trust itself. Of course, the language of the trust and the powers of the trustee will dictate when (how much and how often) the trustee may distribute the trust principle to the beneficiaries.
Gifts are generally not taxable income to the recipient.
Suggest you consult a tax professional who is well versed in estate planning issues for specific details.
My grandmother’s house is in a living trust with my mom and aunt as co-beneficiaries. The home is for sale and we just got an offer of $290k. She paid $8k for it in 1954. Does the cash take place of the real estate? Can she use or distribute the money to relatives any way she wants now? I worked on the house myself and put around $8k into it this summer to increase the value. She is willing to share the increase in value with me.
Should have asked these questions months ago?
Thanks for any advice,
Frank
Q. My grandmother’s house is in a living trust with my mom and aunt as co-beneficiaries. The home is for sale and we just got an offer of $290k. She paid $8k for it in 1954. Does the cash take place of the real estate?
A. Yes, since the house is an asset of the trust, then the proceeds of the sale of the house remain in the trust. If this is a revocable living trust, then the grantor (your grandmother) can withdraw funds from the trust to do with as she wishes.
Q. Can she use or distribute the money to relatives any way she wants now?
A. If this is a revocable trust, yes. If the trust is irrevocable, no.
Not quite sure what your questions have to do with inheritance taxes. Did you have an inheritance tax question?
If this is your grandmothers principal residence and she has lived there for at least 24 of the 60 months preceding the sale, she can get up to $250K in capital gains without having to pay capital gains tax.
After subtracting the sales costs to arrive at a net sales price, she would subtract the “adjusted basis” of the property which would be the original purchase price plus any capital improvements she has put into it. This would include reroof, new water heater, paint, the work you did on it and so on (at the price she paid for the work). This adjusted basis is then subtracted from the net sales price to get the captial gain.
Any capital gain above the $250K exclusion would be taxable as long-term capital gain, probably at 20%.
If an irrevocable living trust has 5 million dollars worth of cash, stock, property; will the beneficiaries, at the time of the grantors death, pay the 55% estate tax or will it be less?
Dave,
Thanks for the answers. So, if the trust is irrevocable then the proceeds from the sale become the asset in the trust and when grandma passes my aunt and mother inherit, correct? Is there a tax on this?
If the trust is irrevocable then my grandmother can gift up to $11k per individual per year tax free?
If she gives my mother $100k and my aunt $100k are there taxes on this as income?