Eugene D asked:
My deceased mother-in-law’s house which is in a “complex trust” dated back to 1992 is to be sold. Is there taxes to be paid (capital gains) on the sale? Thanks!
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My deceased mother-in-law’s house which is in a “complex trust” dated back to 1992 is to be sold. Is there taxes to be paid (capital gains) on the sale? Thanks!
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A personal residence is subject to a tax exemption if the owner lived in it for two of the last five years. If your mother occupied the house, the tax may be avoided. If she did not, the tax may have to be paid. However, this questions cannot be answered because you provide no information on the conditions in the trust. A tax accountant may be able to give you an answer after examining the trust.
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The house would receive a step up in basis at your mother-in-laws death. If that was recent, it is unlikely that there would be any tax owed on her share. You mentioned that it was in a complex trust. If another trust owned part of the property, that part would not receive a step up in basis.
Jim Kirby, CPA/PFS, CFP, CFS
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What kind of trust is this? (“complex trust” is a tax phrase, it doesn’t tell me anything other than some of the principle is being distributed.)
Was this a grantor type trust (often used to organize assets) that became irrevocable when your MIL died? If so, the trust inherited the house at the fair market value on the date of death. If it’s gone up in value since then, only the gain is taxable.
If this was a trust with a different purpose–eg, was irrevocable before she died, my answer would be different.
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If the trust was a grantor trust designed solely to avoid probate it is treated as though it didn’t exist for tax purposes and the value would be stepped up to what it was worth when your mother-in-law died and when sold would be treated as long term capital gain. Treatment from other trusts would depend on the type of trust it was (besides simple or complex.) You will need a pro to sort it out.