I really need to have a CPA help me with this one.
The Trust is invested in a mutual fund, and I am the beneficiary of the income every year. However, even though I personally paid the tax on the income I was entitled to every year, I stupidly left the income in the trust to grow. Now I want to transfer all the income I was entitled to over the years into my own taxable account, but want to avoid selling it in the Trust because of the Trust's much larger capital gains tax. My thought was if I transferred the income in-kind to my own personal account, then the tax burden would be on me instead of the Trust.
Then, once transferred in kind to me how is it taxed? Does the value stay the same as it was in the Trust before it was transferred? Do I personally owe capital gain taxes on it immediately whether I sell it or not? Upon transfer to the beneficiary, does an in-kind transfer of income from a mutual fund then becomes a long-term capital gain for the beneficiary (since it was held long term in the Trust)? Or is it considered a short term capital gain and does it get a new cost basis or value?
Since both accounts are already taxable, I know it would be treated differently than if I were taking it in-kind from a tax protected account and putting it into a taxable account. In that case, the basis resets and taxes are owed because you are changing the character of the taxation of the account.
Thanks so much!
