• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Trust tax question

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

needhalc

Junior Member
What is the name of your state (only U.S. law)? Trust was created in CA. Some beneficiaries are in CA, some in NC.

I am the trustee for my mothers estate and she passed last year. She had two checking accounts, one personal and one for her small business. The personal account had cash she had put away from selling her home several years ago. My accountant said that I could go ahead and do a partial distribution of the personal account to the beneficiaries (her grandchildren) and that there would be no taxes owed. She did say there would be taxes owed on the business account and the proceeds from the sale of the business. I just want to confirm that is correct.
 


curb1

Senior Member
Basically, there generally would be taxes on any income that was made after your mother died.
 

davew128

Senior Member
This makes no sense. Unless the business was a corporate entity (and maybe not even then), there's going to be business income passed out to the beneficiaries BECAUSE of those distributions.
 

curb1

Senior Member
It makes sense if the business was a going business and continued on after the mother's death if the business was held within the trust.
 

davew128

Senior Member
It makes sense if the business was a going business and continued on after the mother's death if the business was held within the trust.
Let me clarify: Unless the business was a C corporation owned by the estate, the idea that no taxes would be owed by the beneficiaries because of a distribution of personal account money was wrong. Any other form of business income would pass out to the beneficiaries BECAUSE of the distribution REGARDLESS of what source it came from.
 

curb1

Senior Member
I'm not following your comment DaveW128. Taxes are probably owed on the business account because the business probably had income.
 

LdiJ

Senior Member
What is the name of your state (only U.S. law)? Trust was created in CA. Some beneficiaries are in CA, some in NC.

I am the trustee for my mothers estate and she passed last year. She had two checking accounts, one personal and one for her small business. The personal account had cash she had put away from selling her home several years ago. My accountant said that I could go ahead and do a partial distribution of the personal account to the beneficiaries (her grandchildren) and that there would be no taxes owed. She did say there would be taxes owed on the business account and the proceeds from the sale of the business. I just want to confirm that is correct.
I think that in general you are not quite understanding the overall situation. Tax is not due on cash that is located in a bank account. Tax is due on taxable income. It may or may not be safe to distribute the money from her personal account...same with the business account.

In general, its much wiser to make sure that all applicable tax returns have been filed and taxes paid prior to distributing, much, if any money, from an estate or trust.
 

davew128

Senior Member
I'm not following your comment DaveW128. Taxes are probably owed on the business account because the business probably had income.
What you're not following is that you don't understand fiduciary taxation. If the estate owns the business, the estate is taxed on the business income. If the estate distributes non-pecuniary assets to its beneficiaries, the income goes with those distributions regardless of the source of those assets.
 

curb1

Senior Member
Davew128, The question by the OP was, 'would these business assets be taxable'? The only answer is "yes" if those assets produced income (that wasn't offset). That simple.
 

LdiJ

Senior Member
Davew128, The question by the OP was, 'would these business assets be taxable'? The only answer is "yes" if those assets produced income (that wasn't offset). That simple.
Actually that is not the answer. The answer is that business assets themselves are not taxable, business profits are taxable. No one can say how much profit the business actually has until either a profit and loss report or a tax return is done for the business income.

If the business is a separate entity, then a business return would be filed and either the business would pay taxes on the profits, and then issue dividends to either the estate or the deceased person (if C-corp) or would issue a Schedule K1 to pass the income through to the personal return of the deceased or to the estate (depending on when the income was earned, if an S-corp or partnership).

The money in the business account could be retained earnings upon which tax has already been paid, could be money that is due to creditors of the business, could be sales or withholding taxes due, or could be profits that are taxable, or any combination of the above.

If the business is not a separate entity, then the business income needs to be files on the deceased person's schedule C (unless the business is still functioning and then it would be split between the return of the deceased and the estate return).

Bottom line, there is no simple answer. The OP needs to be talking to whoever has been handling the deceased's tax returns.
 

davew128

Senior Member
Davew128, The question by the OP was, 'would these business assets be taxable'? The only answer is "yes" if those assets produced income (that wasn't offset). That simple.
Umm, no read it again. My answer was correct the first TWO times I posted it. Assets themselves aren't taxable in the first place, only income is. If there's income to the estate from any source, then the bennies get taxed IF they receive assets. If they don't, the estate gets taxed on the income.
 
Last edited:

curb1

Senior Member
Davew128, you said, "Assets themselves aren't taxable in the first place, only income is."

That is not necessarily true, our corporation paid considerably for business personal property taxes as do most businesses. That tax is on "assets".

I said, "The only answer is "yes" if those assets produced income (that wasn't offset)".

Explain why your sentence is "correct" and my sentence isn't correct?
 

LdiJ

Senior Member
Davew128, you said, "Assets themselves aren't taxable in the first place, only income is."

That is not necessarily true, our corporation paid considerably for business personal property taxes as do most businesses. That tax is on "assets".
Except that wasn't what was under discussion

I said, "The only answer is "yes" if those assets produced income (that wasn't offset)".

Explain why your sentence is "correct" and my sentence isn't correct?
Seriously? Both Dave and I have already explained that. Maybe if you hadn't been so blatant as to use the phrase "the only answer is"...
 

davew128

Senior Member
Davew128, you said, "Assets themselves aren't taxable in the first place, only income is."

That is not necessarily true, our corporation paid considerably for business personal property taxes as do most businesses. That tax is on "assets".
Which has nothing to do with fiduciary taxation or any OTHER form of income taxation. Anything else?

I said, "The only answer is "yes" if those assets produced income (that wasn't offset)".

Explain why your sentence is "correct" and my sentence isn't correct?
The OP asked about fiduciary taxation. Income and the tax ON that income with a fiduciary follows who has the assets. Stop being dense.
 

curb1

Senior Member
You said, "Which has nothing to do with fiduciary taxation or any OTHER form of income taxation. Anything else?"

You have no idea if the assets involved are connected with " fiduciary taxation". It certainly wasn't clear from the OP's comment. Those business assets could be the product of different transactions with a taxable obligation. The OP did not suggest this was only a "fiduciary taxation" situation.

You said, "The OP asked about fiduciary taxation".

No the OP did not. That was an assumption on your part.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top