Selling assets in a Revocable Living Trust

[EGreene21]

We want certain beneficiaries to receive $ from the sale of our house after we pass away. If there are capital gains from the sale (after a Step up in Basis is applied), does the trustee distribute the money from the sale to each beneficiary first and the beneficiaries pay taxes on the amount through their own tax return? Or would the trustee file a 1041 the year of the sale, allow the trust to be taxed on the capital gains, and then distribute the remaining amounts to the beneficiaries? Which option provides the least tax burden? 

[tagteam]

---

@EGreene21 wrote:

Which option provides the least tax burden? 

---

The actual treatment for distribution and tax purposes is dependent upon the language in your trust.

The "least tax burden" will be dependent upon the beneficiary's federal and state income tax bracket and liability for the year of the distribution. 

However, since trust income tax rates are highly compressed, it is typically better to make the distribution to the beneficiary rather than have the trust assume the tax liability.