Question

Family Trust and Beneficiary tax obligations

Forum|Forum|4 years ago
January 10, 2022
2 replies
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I wife and I are beneficiaries of a Family Trust with 3-other parties. My father-in-law died a number of years ago and at that time the house was appraised at $400,000 and was recently sold for $600,000. The trustee paid taxes on the 200,000 capital gain and other expenses and distributed the remainder to all 4-parties. The amount distributed to each beneficiary was $140,000, do we owe tax on that amount? I’m assuming the answer is No based on what I have read online and in the TurboTax forums. The beneficiaries live in states that do not tax property gains from family home sales where total estate assets are under a minimum tax threshold and the sale is not subject to Federal estate tax.

A

Anonymous_

Employee

You should verify this with the trustee but, typically, the beneficiaries do not have income tax liability from distributions if the trust pays any income tax due prior to the distribution.

V

vjmgrilloAuthor

Ok, thank you very much. We live in Florida, but the home was sold in Delaware. Florida does not have state income tax so I think we are ok. I will check with the Trustee, thank you agin.

T

ThomasM125

If the trustee paid federal income tax on the gain through the trust, then the beneficiaries would not have pay tax as well. You may want to insure that the trustee paid income tax, not just an estimated tax on behalf of the beneficiaries though. In other words, make sure the tax paid was on the trust tax return, not simply estimated taxes that the beneficiaries need to enter on their own tax returns.

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