Retired and Receiving Money from a Trust

[Meggie235]

I am retired.  My Mother passed away and left me money in a Trust.  Will I be Taxed on that Money?

[Bozaya1]

Hello @Meggie235 ,

I am sorry for your loss. Whether or not you will be taxed on the money you inherited from your mother's trust depends on several factors, including the type of trust she established and the nature of the assets held in the trust.

If the trust is revocable, also known as a living trust, then the assets in the trust are considered part of your mother's estate and may be subject to federal estate tax if the total value of her estate exceeds the estate tax exemption limit. However, as the beneficiary of the trust, you would not be responsible for paying any estate taxes. Instead, any taxes owed would be paid out of the trust assets before they are distributed to you.

If the trust is irrevocable, then the assets in the trust are generally not subject to estate tax. However, if the trust generates income, you may be required to pay income tax on that income. The amount of tax you would owe depends on the type of income earned by the trust and your tax situation.

Please note that state laws regarding inheritance taxes and trusts vary. 

Here are some links for additional information:

https://turbotax.intuit.com/tax-tips/estates/what-are-inheritance-taxes/L93IUc3sC

Is my inheritance taxable?: https://www.irs.gov/help/ita/is-the-inheritance-i-received-taxable

[marctu]

To add to this for distributions that are taxable, the trust will  file a Schedule K-1 for each beneficiary. The beneficiary will then report the income on their tax return. 

So for example the trust has interest income.  That interest income for you the beneficiary is reported on the K-1, and then you would reported this income on line 2b of Form 1040 or 1040-SR and Schedule B, Part I, line 1, if applicable.  

[tagteam]

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@Meggie235 wrote:

....My Mother passed away and left me money in a Trust.  Will I be Taxed on that Money?

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I am very sorry for your loss.

You should contact the trustee (assuming you are not that person) for further information with respect to the type of trust and the terms of the trust.

[Holly W1]

Hello @Meggie235 

Thank you for joining us today!  I am so sorry to hear about your mother's passing.  
As for the taxability of monies left in a Trust, it will depend on several factors, such as, is from a retirement account, stocks, bonds, etc..  I found a link that is very explanatory on the taxation of trust, and how or when it is taxed.  https://www.investopedia.com/ask/answers/101915/do-beneficiaries-trust-pay-taxes.asp#:~:text=Benefic... 

If you have further questions, I am more than happy to go into more detail with more facts provided.  Again, we are so happy you joined us today!

Cheers!

Holly W

[Laura_CPA]

Hi Meggie235, 

Hope all is well with you, I am so sorry to learn about your mom's passing. The trustee must file a Trust Tax Return 1041 (if gross income is $600 or more), you will receive a K-1 as the beneficiary of that trust and report it on your tax return. Yes, the income generated in that trust and the amount passed down to you will be taxed at your individual level. 

Hope this helps, please let me know if you need additional information. 

Best Regards,

Laura 

[JoeD_CPA_CFP]

Hi Meggie235,

Thank you for participating in today's event. Unfortunately, there is not enough information to answer your question. However, I can provide some general information.

Generally, assets held in a trust follow a trust document/agreement and the trustee of the trust follows those instructions. The document defines the type of trust, whether income and/or principal is distributed, and all other instructions and wishes of the trustor.  You can contact the trustee of the trust to find out about who pays the tax.

Trust tax rates are very unfavorable and usually income is distributed to the beneficiaries of the trust on a Form K-1. This Form is added to your individual income tax return and you pay the tax on the income distributed from the trust at your individual rate. If you get a K-1 then you know you will be paying tax.

Here are some links that help explain more:

Estates and Trusts FAQs 

What is a Schedule K-1 Form 1041

Navigating Family Trusts and Taxes

I hope this helps,

Joe D. CPA/PFS, CFP®