How Living Trust Beneficiaries Get Taxed

Build your estate plan online! MyAdvocate is the online solution for creating and maintaining your Will and all other legally-valid estate planning documents. Click the link below to get started!

--
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.

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
Phone: [phone]

[GManKeepsltReal]

I’ve been binge watching for the past week!!! I go to sleep watching and watch the end of what ever I missed when I wake up!

[virginiamoss]

These videos are so very enlightening; thanks for making them. Understanding that the typical circumstance is a married couple and their children, I wish you could address the needs of single people separately. In my case a single mother with one child who would inherit everything I have. It should be pretty simple, but I'd like to learn all that is involved so both of us would know what to expect and how to make decisions.

[veryslyfox]

When a beneficiary inherits stocks, the cost basis is stepped up. Why does the parent's cost basis matter? This sounds like you're talking about gifting not inheritance.

[GPK]

You missed IRA and annuity considerations WITHIN a trust. Also accumulated and pass through rules. Also 10 year distribution limits.

[benwelsh]

hello. I am a CPA and this is helping me with client questions. Thank you!

[kristichu]

Thank you so much Paul. This is very helpful! I'm a CPA and a tax preparer. I watched every single video of yours and they clarified lots of my questions. Thanks so much and will continue supporting you!

[chanks]

Ha ha -- I've been binge watching this week without realizing it's a "thing"! Thank you!

[cecillenadela]

Thank you I have an appointment today to redo mine shared your channel to my family and friends, I will continue to follow you binged watching here too.

[imsosmart]

I'm a binge Watcher, too! Just last night I left my aunt's financial advisors office with her new power of attorney and we were talking about this very thing! My aunt has about 60 beneficiaries, I don't know what we'll do LOL fortunately her financial advisor and her lawyer stay in touch and they know what's going on, but when I watch your program I realize how much I don't know LOL!

[patcurrie]

Binge watching a few each day. Planning to do a RLT in 2022. Learning everything I can before hand. Thanks Paul.

[toniboracchia]

I am a binge watcher! I miss you if I go 2 days without at least 15 min of your topics while I am on my elliptical or washing dishes! I love to multitask. It has really helped me prepare a Restatement of our trust and made our meeting with a new Estate Planner more efficient because I had outlined what needed to be changed after discussing with my husband. Thank you so much. Keep the topics coming!

[jessecastro]

Man you have great advice and knowledge on this. I'm dealing as my parents executor on their living trust so I'm seeing a lot of what your saying, but gotta tell ya, it all makes my head hurt. Being an executor is not a fun job. But has to be done. I'm already $1500.00 out of my own pocket settling this estate until the life insurance comes in. Pain.

[RealJamieWorley]

When the RLT is the beneficiary of an IRA )or other taxed investment vehicle), and the RLT states the two adult children are the beneficiaries of all assets, can the two beneficiaries make the RLT pay the taxes and then receive the money "after tax"? It is my understanding that the beneficiaries in this situation have a choice: 1) receive their inheritance and pay the taxes on that IRA money, or 2) have the RLT pay the taxes on that IRA money and receive it "after tax." I'm not sure what the tax rate is for the RLT in Oregon, but one thing to note here: Oregon is not a community property state. Thanks so much for your videos! You're the best.

[rosiesturgeon]

I have absolutely been bi he watching for a month. I’ve learned so much. Thank you for the simplistic explanation of this information 🙏

[lp]

Ive been binge watching, I started a new job working in estae gifts and trust tax, thank you for this advice and help

[ivanhardy]

I’ve been binge watching. Thanks for helping me get prepared.

[kevinreed]

Clear concise and easy to follow, appreciate your videos

[patgranson]

Thank you for all the information. This is definitely helping me understand what I need to do before I find an attorney to set up my revocable trust. Really enjoying your talks.

[christinet]

You have a very clear way of presenting this information. The examples really help. Thank you so much!

[hivolco]

First part of this video I was thinking WOW you are talking about my family... my brother was placed in charge and everytime I ask something he skirts the issue and says the attorney will call you, if I ask the Attorney's name he doesn't remember it... and yes it's over 8 months.. THANKS so much for what you do here!