My MiL is wondering about her royalties. She pays taxes on her checks she receives each month but was told if she puts the royalties to her kids in a trust she will have to pay double on taxes. Does that sound right? I told her I would ask on this forum. Thanks
That is a question for an accountant and an estate attorney. An expert in the law and tax would be able to tell her more accurately.
Double taxes does not sound correct. But you can really create unnecessary taxes depending upon the structure. I’d see a CPA
The devil is in the details. The tax consequences will depend on the terms of the trust. If the trust is an irrevocable trust, for income tax purposes it could be structured as a simple trust, a complex trust or a grantor trust. A simple trust for income tax purposes requires all ordinary income to be distributed each year. A complex trust for income tax purposes gives the trustee discretion regarding how much income to be distributed each year–to the extent the income is distributed the beneficiary will be taxed and to the extent the income is retained the trust will be taxed. A grantor trust for income tax purposes causes the grantor to be taxed on the income even though someone is the beneficiary and may receive distributions of income. If a gift is made to an irrevocable trust, the potential gift tax consequences must be considered and the structure of the trust will affect gift tax reporting. If the gift to the trust qualifies for the gift tax annual exclusion, each donee may receive $15,000 of property without the donor having to file a federal gift tax return. Gifts that exceed $15,000 per donee or do not qualify for the gift tax annual exclusion will require the donor to file a federal gift tax return and use part of his or her lifetime gift tax exemption, which is $11,580,000 for 2020. If the property owner places the mineral interests in a revocable trust for probate avoidance and is the sole beneficiary during life, the trust is ignored for income tax purposes although an information return should be filed.
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