Is cash distributed from a deceased parent's trust taxable to the beneficiary?

Forum|Forum|3 months ago
March 25, 2026
2 replies
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My husband's parents passed way in April 2023. They set up a Revocable Trust that my hubby is the sole Trustee for. He has a sister. Last year, they sold the vacation home and the Trust will pay the CG tax on the sale. Now the trust assets are the parent's principal residence, the proceeds from the sale, which is currently in an escrow account, and $ in a couple of bank accounts.

The Trust directs that the sister's share will go in to a remainder Special needs trust for her and my hubby's portion to be paid in cash. His portion, depending on expenses going forward, is in the range of $700K to $750K.

Will his distribution be taxable on our income tax returns? And can the distributions be managed on TT next year?

Best answer by ThomasM125

Since the trust is paying the capital gains tax, then the beneficiaries would not have to pay that. However, the trust likely has other income such as interest income on bank account that may be taxable to the beneficiaries once they start taking distributions. Such income would be reported on the the Trust K-1 schedule that the beneficiaries would use to report income from the trust on their personal tax return.

You can use the TurboTax Business product to prepare the trust tax return. You can enter the K-1 schedule in the TurboTax personal tax return software.

Hi Palms

Level 7

If the trust pays the CG tax then the distribution will be tax free to the benecificiaries. You should use a tax pro, accountant, or other local pro for the SNT in future years so the matter is handled properly.

ThomasM125Answer

Level 15

You can use the TurboTax Business product to prepare the trust tax return. You can enter the K-1 schedule in the TurboTax personal tax return software.

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Hi Palms

Level 7

@ThomasM125 wrote:
You can use the TurboTax Business product to prepare the trust tax return.

Yeah, probably not a great idea for anyone who does not have any experience with trust (1041) returns, espcially since this will involve an SNT in future years. A tax pro should be recommended.