Planning time - revocable trust that owns a rental property. 3 children to inherit the asset/proceeds at death. Property is worth more than its original basis from years ago.
My understanding is that the property gets a step-up in basis at death.
1. I believe that passing the trust to the 3 children means that they all receive their portion of that new basis..
2. I think that if the trust instead sells the property, it has to report the capital gains (presumably very small if sold quickly) on Form 1041 - is that correct?
3. My main question is what happens after that. The trust then distributes the net proceeds of the property sale to the children. I think that distributed trust income is taxed for the children, but distributed principal is not. So, are the proceeds from sale of the property considered income or principal when distributed to the children
Thanks in advance - having trouble finding anything completely clear on all this in the IRS docs or prior questions
