house in trust to be sold tax question

[parpar1]

What is the name of your state (only U.S. law)? California
Father and mother past- house quit claimed into trust 1995 Everyone associated to the trust agrees to sell house ($270,000 approx value). I understand there is not an estate tax to worry about (under 5,000,000). I am worried about income tax on the money we receive from selling the house from the trust. House was bought in 1952 @ $20,000. Quit claim created in 1995. Today's value vs 1995 is about the same. Going back to orig purchase ($20,000) gain is 250,000 approx. We are still under 250,000 for capital gains so we are good there i assume. What can we be taxed on if anything from the sell of the house??

Thank you for your time in advance.

 

[tranquility]

What kind of trust was it?

 

[parpar1]

What kind of trust was it?

Seems to be some confusion. i am trying to get hold of the lawyer that set it up. I am starting to understand that can change the rules.

I should be able to post that answer soon. If you could be so kind. Maybe there is a key word i can look for in the trust. Can you please give me an example of some trust names / types. You can keep it simple if you like i am sure it can get very wordy and complicated.


thanks

 

[tranquility]

Revocable or irrevocable.

Revocable trust can sometimes be called living trusts.

Irrevocable trusts are of many types.

I suspect you will not be able to tell from reading the trust unless you have some background in such matters.

 

[parpar1]

Revocable or irrevocable.

Revocable trust can sometimes be called living trusts.

Irrevocable trusts are of many types.

I suspect you will not be able to tell from reading the trust unless you have some background in such matters.

On the quit claim deed:
quit claimed on 12-26-95 to the trust. Note there is a line that states transfer tax is NONE.
It is a revocable living trust, R&T 11911.
After their death it does state that the trust can not be amended and is irrevocable.
Also there is a statement in section "Provisionf or distribution...." stating distribute share directly to each child free of trust. WHAT? Tax free?

note i corrected some facts about the quit claim in the orig post
Again thanks for your time helping us out here.

 

[tranquility]

You need to see a tax professional who has access to all the documents.

Your facts are not clear and most ANY error on a material point changes everything.

After their death though does it not become / act like a Irrevocable trust. Meaning they have past and are unable to amend / revise it?

Most living trusts set up at that time change to what is known as an AB trust on the death of the first spouse. The A trust is still revocable and controlled by the surviving spouse. The B trust sets up an ascertainable standard so that the surviving spouse can use the assets for needs, but cannot change who will eventually inherit the assets.

When parent 1 died, what happened to the trust and it's assets?

When parent 2 died, what happened to the trust(s) and their assets?

IF:
The trust was a living trust and the house was community property and funded the trust, there should be a step up in basis for 1/2 of the property on the date of parent 1's death.

If the house remained in the revocable portion of the trust after death of parent 1 and the value of the house remained the same until the death of parent 2, the other 1/2 will get a step up. If the house is immediately sold, there would probably be no capital gains taxes.

If those things are not true, the house may be worth more than the basis. If sold, there will be capital gains taxes. That is, unless the house was held in the revocable portion of the trust at all times and parent 2 owned and lived in the house for 2 of the last 5 years and the house is sold from the trust before distribution--then you would get up to $250K in exclusion from capital gain taxes.

 

[parpar1]

Thanks for the info we are going to get a tax pro.

Parent 2 lived in the house after death of parent 1. And the house stayed in the revocable part of the trust. Parent 2 died three months after parent 1.

Being that there is only the house in the trust and no other assets is it safe to assume that the sell of the house falls under capital gains, which is under $250,000 so i do not pay, and not income tax for me, which i would pay. Does that make sense?

Or maybe say it this way. The house is in trust. the trust sells the house, meaning the money is now in the trust, not in our hands yet. Then that money is distributed from the trust to us. Is it distributed to us and then we claim that as income. Or has all the tax liability been taken care of while part of the trust.

Thanks for your advise and help. I will take the docs to a tax pro too.

 

[tranquility]

Being that there is only the house in the trust and no other assets is it safe to assume that the sell of the house falls under capital gains, which is under $250,000 so i do not pay, and not income tax for me, which i would pay. Does that make sense?

Or maybe say it this way. The house is in trust. the trust sells the house, meaning the money is now in the trust, not in our hands yet. Then that money is distributed from the trust to us. Is it distributed to us and then we claim that as income. Or has all the tax liability been taken care of while part of the trust.

Read my prior post. You tell me.

 

[parpar1]

Read my prior post. You tell me.

So selling the house in the trust, and it being under the $250,000, there is no cap gains tax to be paid. So no tax on that money. Meaning if the profit was $250,000 it is still $250,000 sitting in the trust.

And the money distributed from the trust is an inheritance and there is no estate or inheritance tax applicable and we get the full $250,000.


I hope I got that right. Time for a tax guy.

 

[anteater]

The way that you are tossing that $250K around, I'm not certain that you have the terminology down.

The capital gain is the difference between the net sales proceeds and the adjusted cost basis. If the conditions for the exclusion are met, it is the first $250K of capital gain that is not subject to tax.

Of course, if the exclusion is applicable and the net sales proceeds are less than $250K, then the cost basis is irrelevant.

 

[parpar1]

the way that you are tossing that $250K around, I'm not certain that you have the terminology down.

The capital gain is the difference between the net sales proceeds and the adjusted cost basis. If the conditions for the exclusion are met, it is the first $250K of capital gain that is not subject to tax.

Of course, if the exclusion is applicable and the net sales proceeds are less than $250K, then the cost basis is irrelevant.

Sorry i am struggling with the conversation. never have been good doing this stuff over a keyboard,

Ok then, Lets forget about cap gains-----The cap gains is a none issue. lets assume there is none. Lets just assume the trust has $200,000 in it. So back to the income tax concern. Did i get it right that the money distributed from the trust will not be taxed as income when distributed. The trust is an inheritance and there is no estate or inheritance tax applicable in california?.

 

[anteater]

Right, a distribution of principal from the trust is not taxable income. (And I realize that there is a possibility that a distribution of income from a trust could be taxable, but let's not go there and confuse things.)

At the values that you are talking about, there would be no estate/inheritance tax.

 

[parpar1]

I am afraid to say it but it all make sense to me know. Thank you for putting up with my learning curve. I think i am comfortable with all this now.

Thanks again

 

[tranquility]

How can it be "clear" when you don't even know important facts?

 

[parpar1]

Its clear that there are many laws and rules depending on many factors. And those laws and rules are complicated to apply without knowing every detail concerning the Trust. i now know several terms and the meanings and questions to be asked when i talk to the lawyer and CPA.

So it is clear to me that i have no idea what the answer is with out understating many things. so i need to go to the people that do understand these things to get my answer.