How Living Trust Beneficiaries Get Taxed

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It's common for people to establish a revocable living trust, and transfer assets to the trust, so that those assets pass to beneficiaries outside of probate.

Many beneficiaries inquire about the tax consequences to principal beneficiaries when the people who set up the trust, and transfer their assets to the trust, pass away.

Generally, an inheritance from a living trust is income tax free. As long as the estate of the trust settlor is less than $11.58 million, then there will be no 40% federal estate tax.

Bank accounts and cash that is distributed to trust beneficiaries is free of tax. Appreciated assets in the trust receive a step-up in basis when the trust settlor dies.

Beneficiaries of traditional IRAs must pay income tax on distributions they receive from the IRA.

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This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450