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Question

I am the successor trustee for a home in a revocable living trust. The home is in escrow. The funds will be distributed to 5 beneficiaries. What are the tax ramifications to the estate/ to the beneficiaries?

The home is in California.
The trustee for this trust was my mother who passed away 6 months ago. She had no money and no other assets. She lived on Social security.
A financial adviser told me the would be no federal taxes on this inheritance.

Answer 1

When you inherit property or money, the inheritor (you and your 4 other benficiaries) pays NO income tax on the inheritance. If there is any death taxes (really estate taxes) they are due from the estate of the decedent. Since the estate was well below any taxable threshold, the estate will not owe tax either.

HOWEVER, that being said, one does have to pay tax on any GAIN since the date of death of the decedent. Example: If the property was worth $500,000 on the date of death, but you sold it for $600,000, the $100,000 gain is the only taxable portion.

More likely in your case is that the property was sold at or below the value you received it, taking into account closing and selling costs. Therefore, you hwill have no taxable gain.

I have a client where we did this very thing, also with 5 beneficiaries in Texas this past week. The net funds were paid out to the 5 siblings and each received a 1099-S in his name/SSN. In this case, the houses were sold 2 years after death, so they did appreciate a little bit, but not much.

--A Damn Fine Tax Advisor

Answer 2

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