My late father's home was under a living trust. It was sold and monies distributed to the beneficiaries. Must I declare this as income and/or capitol gains on my federal and state tax forms? I was told I had to do nothing but am unsure if this is correct.
You have nothing to do but the successor trustee has to file a tax return for the decedent and the estate and issue you a K-1 for any income tax.
If the home sold after his demise, then the transaction is reported by the irrevocable administrative trust that arises on death. The tranaction is taxed to the trust unless a final distribution has been make then it flows to the beneficiaries. It sounds like this is the case.
So ask if you will receive a K-1. Seek services of the attorney who set up the trust or an estate planning attorney.
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Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract.
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Robert J. Suhajda, MS,CPA
17721 Norwalk Blvd. #43
Artesia, CA 90701
Former financial auditor and controller. Admitted to US Tax Court, Income Tax, IRS representation, Fiduciary income tax returns, Estate and Gift tax returns,
Homeowner Association Strategist.
The prior attorney offers sound advice. The short answer here is that you report this transaction as it is presented to you via a Form K-1 (Form 1041). That form reflects your share as beneficiary of all and any items of income or final expenses of the estate that come out to you. Get with an experienced tax/estates attorney to make sure all of this is done correclty.
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Oftentimes, the provisions of the living trust will have instructions on the payment of taxes, whether they are Federal Estate Taxes or income taxes (e.g. to be paid by the trust or that the Trustee advances payment of the taxes and then those tax payments are later deducted from the beneficiaries' share). Sometimes, there is a tax advantage to allow the beneficiary to pay any potential taxes if their tax bracket is lower than the trust's tax level.
In most situations, the Trustee will prepare a fiduciary tax return on form 1041 to report the sale of the property because it was sold as an asset belonging to the trust.
Contact the trust administration attorney and/or the CPA to get a complete answer to your question.
Although the above response is believed to be accurate, it should not be relied upon as any type of legal advice because the information provided is incomplete. It is intended to educate the reader and a more definite answer should be based on a consultation with a lawyer. No attorney client relation is formed with me without a written contract. This answer does not create an attorney-client relationship.