My father just died and had sold his house and had put it into a trust. will I have to pay taxes on this money?

My father just died and had sold his house and had put it into a trust. Will I have to pay taxes on this money? Asked by specshopgirl 12 months ago Similar questions: father died sold house put trust pay taxes money Business > Taxes.

Similar questions: father died sold house put trust pay taxes money.

If he sold his house and put the money in a irrevocable trust within three years of death, the three year anticipation of death rule will apply and the value of his home is included in his estate. The money had to have been in the trust for more than three years. But, that makes no difference this year as the estate tax has been repealed for 2010 so there is no estate tax on the money in the estate.

Trusts are usually set up to avoid estate tax and inheritance tax and usually pay a monthly or annual amount over time. You need to have your Dad's trust lawyer let you know what the state inheritance tax rate is for you and if, in fact, there is one in your state. Under current law, when the house was sold, your Dad, that year had to report any gain in the sale of the house.

Unless he died in the same year he sold the house. So you will have to file a final tax return for him. Either the sale was already reported in a previous year or you will have to report it this year.So if you Dad bought the home for $100,000 and sold it for $300,000, there was $200,000 of capital gain.

But the law allows the first $250,000 of gain for a single person or $500,000 for a married couple to be excluded. So in any event there should be no capital gain tax unless the gain in the house was more than $250,000 or $500,000. Most people sell property and put it in trust before death, but depending on the property, it is sometimes better to just leave the property to the beneficiary because of what is called the stepped up basis rule.

What this means is, if you Dad had just left the house to you, assuming his estate was small enough not to trigger estate tax, and for example, he had bought the house for $100,000 and it is now worth $300,000, your basis in the house is now $300,000. This means if you sold it tomorrow, you would owe now capital gains tax. But if he had given you the house as a gift, your basis would have been $100,000 and if you would have sold it, you would have had $200,000 of capital gain unless you had lived in the house for two years, then you could have used the capital gain exclusion.

So, the bottom line is, you need to check with the trust attorney to see if there is any inheritance tax in your state. You should owe no estate tax, and unless the basis in the home was greater than $250,000 or $500,000 there will be no capital gain tax either.

He probably has a financial advisor who helped set up this trust, who can give you all of the answers, but usually the trust is formed to smooth the inheritance process or to sidestep inheritance taxes or both. (for example, if there is going to be an increase in the threshhold before taxes are assessed a few years down the road, the trust can be set up to pay out after that increase) .

Usually the estate will pay all the taxes, you won't. The bright side is there's no federal death tax this year, so there will be no federal taxes the estate will have to pay, only the state death tax. And each state usually allows a certain amount of money to pass to you before any taxes have to be paid.So it depends on how big your father's estate is as to how much tax the estate will have to pay.

TLW is correct. It all depends on how the trust was set up. THat's something that the lawyer will tell you.

You will have to file a final tax return for him. This will be part of settling his estate. The sale of the house will be reflected on that tax return.So the amount of tax will be a function of his basis in the house (basis is what he paid for the house and any capital improvements he added.

) So if the FMV of the house is $300,000 and his basis is $200,000 - there may be a capital gain of $100,000. However, if this was his residence, there is a $500,000 (I think) exemption - so there would be no tax on the first $500,000 of gain. Your (or his) CPA can help you with all of this.

The money in the trust is not the issue for income tax purposes. For estate tax purposes, if he died this year, there is no estate tax.So all of the money, net of the income taxes will be tax free to you. But even if this were under the old law, his total estate would have had to exceeded $1,000,000 (starting next year unless they change it) or $3.5mil last year (which is irrelevant at this time) before any taxes would have been due.

Hope this is helpful.

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