Inheretance thru Trust

[GPNWNeil]

A Trust created by a Will in 1995 has paid all taxes due
through the end of tax year 1997 on income from the assests
in the trust. The Trust has retained and reinvested all
income other than income used to pay taxes. The Trust will
be terminated in 1998. Are the assests now in the trust,
including income on which the Trust has paid taxes, passed
to the benificiaries the tax free? The beneficiaries of the
Trust were established by the will that created the Trust.
(I understand that 1998 income from Trust assests will be
taxed.)

[THealyCPA1]

All 1998 trust income will be taxed to the beneficiaries,
since there will be distributable net income. There is no
current tax due on the actual distribution of trust assets.
The beneficiaries need to know the basis (date of death
value for assets remaining from the decedent) of the assets
they receive, because they will need that information when
they sell those assets.

Tom

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[Dan Evans]

gpnw...@aol.com (GPNWNeil) wrote:

> A Trust created by a Will in 1995 has paid all taxes due
> through the end of tax year 1997 on income from the assests
> in the trust. The Trust has retained and reinvested all
> income other than income used to pay taxes. The Trust will
> be terminated in 1998. Are the assests now in the trust,
> including income on which the Trust has paid taxes, passed
> to the benificiaries the tax free?

Thanks to the repeal of the "throwback rules" under
Subchapter J, the 1997 income that was accumulated in the
trust and taxed to the trust will not be taxed again when it
is distributed in 1998.

Generally speaking, the beneficiaries need to be concerned
with only two things:

1. The income earned by the trust in the year of
termination will be taxed to them; and

2. The tax basis of the assets that are distributed will be
the cost basis in the hands of the trustee (which could be
fair market value as of the date of death in 1995).

*Dan Evans
*The above general information is provided
*"as is" and carries no warranty of fitness
*for any particular factual situation.