Liquidating trust and capital gain and tax

19-Jan-2017 07:17 by 3 Comments

Liquidating trust and capital gain and tax - Sex teen bute chat

With more assets held in trust and higher marginal tax rates, many clients and advisers are now considering distributions from trusts to beneficiaries as a way to shift the tax burden to individuals in lower tax brackets.However, under the traditional definition of fiduciary accounting income (FAI), capital gains are typically excluded from distributable net income (DNI) and, thus, are taxed at the trust level.

So, for Capital Gains Tax purposes, whether the shares are transferred to the Beneficiaries in kind, or the Estate sells the shares and transfers the proceeds, the issue will be that Capital Gains Tax will not be liable if the shares either are transferred or liquidated if the value at time of transfer is the same or lower than at date of death.There is also a new tax that applies beginning in 2013, the so-called Medicare surtax, which is a 3.8% tax on “net investment income.” Net investment income generally includes (a) interest, dividends, annuities, royalties and rents, (b) gains attributable to the disposition of property and (c) income and gains from a trade or business, but only if such trade or business is a passive activity with respect to the taxpayer or involves trading in financial instruments or commodities.For individuals, the surtax applies to the lesser of net investment income and the excess of modified adjusted gross income (AGI) over 0,000 (or 0,000 if married filing jointly).331 when they receive the liquidation proceeds in exchange for their stock.If the corporation distributes its assets for later sale by the shareholders, the assets generally “come out” of the corporation with a basis equal to FMV (and with the related recognition of gain or loss under Sec.Will Rogers has been quoted as saying “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” Earlier this year, Congress passed the American Taxpayer Relief Act of 2012, which may have prevented us from falling off the fiscal cliff, but further complicated the already complex world of income taxation of estates and trusts.

Whether you are a fiduciary or beneficiary of an estate or trust, or one of their advisors, you should take note of some of the more important changes under the new income tax laws, as well as strategies that can be employed to minimize the tax.

Tax advisers should understand the options available under state law, including the "power to adjust" and "unitrust" provisions, and how those provisions intersect with Regs. FAI, also referred to as trust accounting income, is determined by the governing instrument and applicable local law.

Although it is not a tax concept, FAI is important in determining whether the fiduciary or beneficiaries pay tax on the trust's income.

If the stock is a capital asset in the shareholder’s hands, the transaction qualifies for capital gain or loss treatment.

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331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).

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