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4 Answers

Irrevocable Trust disbursement, it is taxable?

Asked by: tmoran 1514 views YA Discussion

My mother sold her primary residence and the proceeds (300,000.00), was put into a irrevocable trust. My two brothers and I are the beneficiaries of this trust. On my mothers tax return for the year of the sale of the property, she reported the sale of this property and had no tax liability for the sale based on a number of factors. Tax returns are being filed annually on the trust. Are disbursements from the trust taxable to the beneficiaries? Are expenses managing the trust deductable from the trust’s tax return?

4 Answers

  1. Max Hoopla on Aug 29, 2012 Reply

    Disbursement of principal is not taxable but income is presuming it is not taxed to the trust.

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  2. Quick Answers on Aug 29, 2012 Reply

    So, mom filled out a form 709 (gift tax form) when she funded the trust. Mom has plenty of other assets to pay for nursing home care if she needs it.

    You don’t say what the trust is invested in, what income–if any–it is generating, and whether or not the trust document says that any income must be disbursed (or if you are actually getting any of the money). Yes, if all of the trust’s income is taxable, the expenses for managing the trust are deductible, but are subject to the 2% of AGI rule.

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  3. tro on Aug 29, 2012 Reply

    the house was sold and the proceeds remained in the trust which the estate paid the taxes
    now any income that is derived going forward is taxable and if it is distributed to the heirs it is taxable
    and yes managing the trust expenses are costs that are deductible

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  4. Lynne on Aug 29, 2012 Reply

    There are a few ways to set these trusts up. But it sounds like the disbursements are unlikely to be taxes and trust expenses can be deducted.

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