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How do I not pay taxes on money I received from a trust

Ellensburg, WA |

I am one of the beneficiaries of a trust. The trust gave me 12000.00 dollars this year and it looks like I have to claim is on my taxes. How do I get around paying the taxes. Can the trust gift me an annual amount? The trust is a family holding trust with property in California and I live in Washington state.

Thanks
jb

Attorney Answers 3


  1. I would recommend that you speak with your lawyer, CPA or tax accountant for timely and accurate advice on the amount of money you can be gifted in one year without triggering a tax obligation. It is possible that information is available on line at the IRS website.

    Hope this helps. Elizabeth Powell


  2. Generally, distributions from a trust "carry out" ordinary income of the trust (dividends, interest and rents) to the beneficiaries, to the extent that the trust had income. That income is generally allocated against all of the distributions pro rata. "Income" for this purpose does not normally include capital gains, which are taxed to the trust.

    The amount and character of the income that may be included in your distribution may depend on several factors. As the other lawyer said, you should speak with a lawyer or CPA who understands the special rules that apply to income taxation of trusts, estates and beneficiaries. This is called "Subchapter 'J'" of the Internal Revenue Code.

    Jeffrey L. Crown
    Trustlawyer, LLC
    21 New Britain Avenue
    Rocky Hill, CT 860-257-4330
    www.trustlawyer.com


  3. Good advice already. The fact that you received $12,000 does not mean that all of it is "income" to you upon which income taxes would be due. Only your tax advisor or tax attorney can accurately answer your question once they know the source of the distribution (income or principal). Generally, the trust can't make an annual exclusion "gift" but someone could have gifted the amount to the trust for your benefit which you had the right to demand but it looks like you actually received the distribution. Generally, income is distributed to the beneficiaries to be taxed at their personal rates which are often lower than the trust tax rate, thereby saving you money in the long run. And remember, you may have state income tax issues as well as federal. All of this points to your need to create relationships with legal, financial and tax advisors who can help you plan long-term for dealing with inheritance issues.

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