DGAA bLAWg

Capital Gains Tax and Trusts

Web Admin - Thursday, June 25, 2015

capital gains tax, Illinois estate planning lawyerToday, increasing numbers of individuals are turning to trusts as opposed to wills for their estate planning. Trusts are often advantageous over wills because they allow for greater flexibility and control over assets. It is important to know the impact of capital gains tax on the assets that fund a trust.

Step-up in Basis

Capital assets include items like a house, stocks or bonds, and machinery. When one of these items is sold, the difference in the sale price and the original purchase price is considered a capital gain or loss. If an item is sold and a profit is realized, the capital gain is taxed.

If an individual forms a grantor-type trust, all appreciated assets that are transferred into the trust (items like real estate or a stock portfolio) are eligible to receive a step-up in basis upon the death of the grantor. Basis is the cost of the property or asset. A step-up in basis is a readjustment of the value of an asset to its current value for tax purposes upon inheritance of the asset. This is important because it minimizes the beneficiary’s capital gains taxes going forward.

For example, let’s say a grantor purchased an asset for $50 and transferred it to a trust. The grantor’s basis is $50, meaning if the asset were to be sold, the difference between $50 and the sale price would be the amount subject to the capital gains tax. Now, let’s say that at the time of the grantor’s death, the value of the asset is $100. The beneficiary receives a step-up in basis, meaning his or her basis is $100, not the $50 that the grantor originally paid. This is important because if the beneficiary decides to immediately sell the asset for $100, she will not be subject to any tax. Further, any sale in the future after the asset increases in value will be subject to tax on the difference between the sale price and $100, as opposed to $50 if a step-up in basis was not available.

An important consideration is when the step-up in basis is applied. For example, how is the step-up in basis determined if a married couple each owns half of an asset through the use of separate trusts and they die at different points in time? If the deceased spouse’s share is transferred to the surviving spouse, the surviving spouse will receive a step-up in basis. When the surviving spouse dies and the trust is inherited by the beneficiaries, they will also receive a step-up in basis.

Finally, it is important to be aware of the Medicare tax on “unearned” net investment income. This imposes a 3.8 percent tax on the net investment income, which includes capital gains, of joint filers who have a modified adjusted gross income of greater than $250,000 or single filers with an adjusted gross income of greater than $200,000.

Help Forming Your Trust

If you would like more information about forming a trust, you should reach out to an experienced Illinois estate planning attorney today. Our firm proudly represents individuals throughout the northwest suburbs, including areas such as Crystal Lake, Inverness, Schaumburg, Kenilworth, Long Grove, Palatine, and Barrington.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.

Trust Payments and the Capital Gains Tax

Web Admin - Wednesday, August 27, 2014

capital gains tax in IllinoisThe capital gains tax exists as a way for the government to tax the income that flows to investors from certain investments. In general, the capital gains tax applies to the sale of most assets other than inventory. This includes the sale of things like stocks, bonds, and real estate. The current capital gains tax rates vary depending on a person's income bracket. According to the IRS, the capital gains tax for people in the 25 percent, 28, percent, 33 percent, and 35 percent income tax brackets would be 15 percent.

People paying taxes in the highest bracket, 39.6 percent, would pay 20 percent in capital gains tax, and people in the other, lower tax brackets do not pay capital gains tax at all for most capital gains income. Additionally, the Affordable Care Act also introduced a further 3.8 percent tax on capital gains income for people earning either $200,000 a year as single filers, or $250,000 a year as married filers, which went into effect at the start of 2013.

This capital gains tax can interact with trusts in complex ways, and trustees should be aware of the issues created by the capital gains tax and trusts. First, trustees should be aware of how capital gains affects the way that they manage K-1 tax forms. Second, trustees should keep in mind the interaction between capital gains and the income distribution tax deduction that trusts are allowed to take.

K-1 Forms

K-1 forms are a type of tax form that exists to help the owners of pass through entities fill out their personal income tax returns. Pass through entities are entities like S corporations and some LLCs that do not pay taxes themselves, but instead pass the taxes on to the owners. Trusts, strictly speaking, are not actually pass through entities since the trust is responsible for paying some taxes, but the beneficiaries may also owe taxes based on distributions to them from the trust, so they often receive a K-1 form. As far as the need to report capital gains income on a K-1 form, that depends on the specifics of the trust. As a default rule, the capital gains and losses stay with the trust itself, but the trust instrument may choose to pass those along to the beneficiaries, which would result in the trustee needing to add them to the K-1 form.

Capital Gains and the Income Distribution Deduction

Capital gains may also have an effect on the trust's income distribution deduction, a tax deduction that trusts may take for amounts paid to an income beneficiary. The income distribution deduction is equal to the lesser of either (1) the distributions minus tax-exempt income or (2) the “distributable net income” minus tax exempt income. Capital gains may affect this distribution because it figures into the calculation of distributable net income under several circumstances, most commonly if the trust requires the trustee to distribute the gains to the beneficiaries.

Managing a trust is a complex task from both a legal and financial perspective. If you have questions, seek help from an experienced Illinois estate planning attorney. Our firm's skilled lawyers serve clients in many northwest suburban towns such as Inverness, Barrington, and Kenilworth.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.


Recent Posts


Tags

Do Not Resuscitate Crystal Lake personal injury lawyer insurance negligence Crystal Lake employment lawyer pedestrian injuries, pedestrian fatality investment property trucking accidents landlord tenant law spinal cord injuries estate planning, digital assets, Revised Uniform Fiduciary Access to Digital Assets Act, Illinois digital assets, Illinois estate planning, Schaumburg criminal attorney Arlington Heights trucking lawyer Chicago biking tips Inverness corporate attorney product liability Illinois will lawyer sexual harassment Crystal Lake pedestrian accident lawyer Rolling Meadows employment law attorneys insurance agent negligence Des Plaines personal injury lawyers Arlington Heights Attorney elder law bicycle dooring accidents Rolling Meadows employment attorney real estate zoning marijuana crimes attorney Rolling Meadows personal injury lawyers elder abuse pedestrian-automobile accident Palatine employment law lawyer Schaumburg injury lawyer Illinois attorney filing a medical malpractice claim swimming pools digital evidence murder defense Inverness real estate attorney estate attorney low-ball insurance settlement Super Mario Illinois traffic ticket lawyer Joliet general practice lawyers Food and Drug Administration's Food Safety Modernization Act Crystal Lake car accident lawyer capital gains tax ObamaCare Des Plaines medical malpractice attorney Crystal Lake pet attorney Arlington Heights personal injury lawyer probate claims process operating agreements civil litigation attorney Colin H. Gilbert bike accident disability benefits installment contracts irrevocable trust changes to mortgage law Arlington Heights estate planning attorney ken apicella Illinois employment law firm Barrington employment law attorney back injuries Buffalo Grove personal injury attorney Policy Cancellation no contest clauses Rolling Meadows personal injury attorney Barrington estate planning lawyer commercial leases Rolling Meadows marijuana attorney Illinois insurance lawyer Des Plaines DUI attorney Illinois real estate lawyer Schaumburg elder law lawyer privacy laws probate fees reckless homicide forming a corporation in Illinois medical marijuana unauthorized overtime Rolling Meadows insurance dispute lawyers, insurance dispute employment law, Illinois employment laws Illinois estate planning law firm Illinois job attorney Fair Labor Standards Act insurance disputes, Illinois insurance disputes, Illinois insurance dispute attorneys, denied insurance claims, Arlington Heights insurance dispute attorneys consent to a search Thanksgiving Buffalo Grove real estate attorney Rolling Meadows criminal lawyer Legal Info Des Plaines insurance attorney Palatine personal injury lawyer Class A misdemeanor Palatine employment lawyer POA personal injury Illinois traffic accident lawyer breathalyzer test Crystal Lake car accident attorney license revocation Illinois workers compensation attorney personal injury, auto accident injuries, delayed injuries, serious injuries, Des Plaines personal injury attorneys new real estate form Des Plaines motorcycle accident attorney Kenilworth estate planning attorney nursing home negligence Arlington Heights lawyer blended families workplace sexual harassment employee discrimination Buffalo Grove personal injury lawyer trucking accident lawyers Schaumburg insurance lawyers insurance dispute, insurance dispute lawyers, insurance claim denial, insurance claim delays, Rolling Meadows insurance dispute attorneys life insurance lawyer Illinois Transfer on Death Instrument power of attorney for healthcare Illinois workplace lawyer Schaumburg personal injury lawyers Chicago will attorney, social media platforms, Illinois estate planning lawyer, bicycle accidents Illinois driving without license Illinois employment law attorneys Palatine criminal defense lawyer severance agreements financial advisors living trust meal breaks Barrington personal injury lawyer Illinois wills and trusts attorneys personal injury law firm internet insurance adjusters Arlington Heights injury attorney Schaumburg wrongful death attorney personal injury accidents Arlington Heights tax lawyer liability Illinois wills and trusts car accidents Illinois medical malpractice lawyers Illinois Smoke Detector Act Home Remodeling Repair Act rest breaks Transfer on Death Instrument drug possession Crystal Lake employment attorney Schaumburg car accident attorney Illinois motorcycle accident lawyer business litigation Rolling Meadows car accident lawyers Illinois business law atorneys Illinois employment laws Illinois insurance dispute lawyers products liability Crystal Lake civil litigation lawyer fiduciary rule delay car accident lawyer Rolling Meadows probate lawyer Buffalo Grove probate lawyer life insurance claims Crystal Lake medical malpractice lawyer Illinois insurance claims lawyers Des Plaines personal injury lawyer insurance denial appeals Affordable Care Act texting and driving premises liability Barrington attorney Illinois Probate Act of 1975 Schaumburg traffic lawyer employee rights rent to own real estate contracts GM ignition switches Fourth of July drug crimes lawyer Inverness elder law lawyer slip and fall accidents icy parking lots Illinois Wage Payment and Collection Act Illinois medical malpractice attorney Arlington Heights employment law attorneys Arlington Heights accident attorney slip and fall Buffalo Grove corporate attorney Buffalo Grove traffic lawyers Illinois collections attorney Rolling Meadows drug defense attorney ACA unpaid assessment Illinois insurance claim attorney comp time overtime pay employment contract pregnant women IRS Rolling Meadows DUI lawyer estate plan license problem employees Federal Food Drug and Cosmetic Act Landlord Tenant Ordinance employment attorney marijuana car crashes Des Plaines injury law firm cell phone Arlington Heights employment attorney boating under the influence Barrington boating accident attorney condo association pizza emoji Rolling Meadows Attorney Barrington litigation attorney homestead rights probate lawyer Illinois pedestrian accident attorney Arlington Heights personal injury attorney Schaumburg civil litigation attorney wage theft Illinois lawyer Home Sale Contingencies living trust benefits Illinois home inspection Liquor Control Act guardianship attorney underage DUI Illinois workers compensation lawyer Arlington Heights car accident lawyer criminal power of attorney Rolling Meadows business lawyer insurance claim dispute digital assets Chicago trucking accident attorney Chicago employment attorney driving Illinois employment law attorney employment lawyer hiring employees Palatine workers compensation lawyer pedestrian accident DNR estate planning Rolling Meadows Traffic Lawyer Illinois tax attorney Palatine drug lawyer expungement fiduciary rule Palatine business attorney Chicago estate planning Illinois Human Rights Act car crash injuries Crystal lake insurance dispute attorney Illinois real estate Long Grove estate planning attorneys Palatine corporate attorney Schaumburg estate planning attorney traffic laws right to work Illinois medical malpractice case Crystal Lake tax lawyer real estate contract federal regulations for LLCs Deer Park motorcycle accident lawyer pet law cell phone accidents subcontractor Palatine insurance lawyer Des Plaines drug crimes lawyer Buffalo Grove car accident lawyer construction accidents, personal injury, wrongful death, Arlington Heights personal injury attorneys, workers' compensation landlord BAC digital media accounts, estate planning, Arlington Heights estate planning attorney, taxes breach of contract living trust vs will medical malpractice, missed diagnosis, delayed diagnosis, medical mistake, Deer Creek medical malpractice lawyers civil litigation Rolling Meadows litigation lawyer Illinois probate lawyer employment contract, employment law, employment at-will, Deer Park employment law attorneys, contract, personal injury lawyer blood alcohol content Illinois red light cameras Deer Park criminal attorney Barrington civil litigation attorney Arlington Heights wills and trusts attorneys manufacturing loss of consortium vacation home fines murder Crystal Lake bike accident lawyer bad faith insurance claims Des Plaines pet law attorney Des Plaines real estate lawyer Illinois personal injury attorney uninsured motorist Illinois living will Schaumburg estate attorney car accident Arlington Heights wills and trusts attorney Illinois registered agent hands free device Mount Prospect wills and trusts lawyers traffic tickets Schaumburg BAIID Deer Park medical malpractice attorney unfunded trust gift tax exemption, estate planning, estate planning strategies, Illinois estate planning, South Barrington estate planning attorneys trust payments Schaumburg medical malpractice lawyer real estate attorney Buffalo Grove traffic attorney TBI employee misclassification Rolling Meadows estate planning attorney Forcible Entry traffic crimes Chicago insurance law firm Rolling Meadows personal injury lawyer income distribution deducation caretaker rights health insurance dispute Mount Prospect real estate lawyer Crystal Lake employment law attorney DUI attorney preventing accidents agent Buffalo Grove medical malpractice lawyers drunk driving statistics drugs Palatine employment attorney Des Plaines tax law firm insurance disputes probate Mount Prospect elder law attorney work unions wills and trusts Illinois personal injury Illinois Sales Representative Act Crystal Lake personal injury attorney distracted driving accidents Deer Park real estate law firm Barrington criminal lawyer job lawyers FSLA Employment Discrimination Law deed transfer drug crime BUI crossover accidents college kids Crystal Lake traffic attorney traffic deaths first degree murder owner responsibility Illinois speeding lawyer workers compensation IRA trust transfer Des Plaines drug lawyer South Barrington real estate lawyer Palatine construction attorney Deer Park personal injury lawyer Barrington injury attorney involuntary manslaughter Arlington Heights real estate lawyer wrongful termination, employment law, whistleblower protections, Illinois employment laws, discrimination in the workplace Illinois boating accident lawyer Illinois civil litigation lawyer traffic accidents unpaid overtime cell phone tower data Kenilworth estate planning attorneys Palatine trusts lawyer special needs trust rumble strips senior citizens Schaumburg estate planning lawyer llinois Real Estate Lawyers Association Palatine injury attorney Schaumburg personal injury attorney personal injury claims drug crimes Barrington criminal defense lawyer employment law, meal breaks, rest breaks, hotel employees, Des Plaines employment law attorneys Crystal Lake criminal defense attorney real estate attorneys Schaumburg Attorney Illinois Workers’ Compensation Commission rollover car crashes denied insurance claims Kenilworth estate planning lawyer Illinois car accident attorney real estate lawyer Crystal Lake business law attorneys Inverness traffic law firm wrongful death motorcycle accident commercial real estate Deer Park DUI lawyer Buffalo Grove injury lawyer brain injury mortgage foreclosed rental property Illinois pet lawyer fatal car accidents Illinois estate planning dynasty trusts Illinois injury lawyer traumatic brain injury child safety car collision murder charges probate claims Illinois employment attorneys Arlington Heights wills and trusts lawyers medical malpractice compensation DUI life insurance policy Des Plaines Traffic Lawyer Illinois medical malpractice claim life insurance appealing an insurance claim Illinois bicycle safety DMV Inverness real estate lawyer insurance dispute Inverness DUI lawyer criminal record Illinois estate planning attorney wrongful termination estate planning trusts Rolling Meadows insurance dispute lawyers Schaumburg criminal law attorney pay when paid contract surgical mistakes natural gas advance healthcare directive institutional trustee Illinois insurance claim dispute lawyer Illinois business lawyer jet ski accidents insurance claim Illinois employment lawyer estate planning for college students fault based insurance real estate closing Inverness civil lawyer condo compensatory time Illinois wrongful termination lawyer estate tax Palatine estate planning lawyer Schaumburg personal injury lawyer Deer Park traffic lawyer accidental death benefits anesthesia errors spinal cord injury Illinois traffic laws pain and suffering Deer Park traffic accident attorney insurance agents personal injury claim Crystal Lake traffic lawyer suspended license Illinois personal injury lawyers gift taxes construction contracts Chicago lawyer underinsured motorist sole proprietorship Des Plaines real estate attorney Crystal Lake injury attorney DUI defense texting while driving estate planning lawyer medical research Crystal Lake estate planning lawyer insurance dispute attorney Chicago will attorney car accident lawyers LLCs Schaumburg probate attorney estate planning, death tax, succession plans, business estate plans, Barrington estate planning lawyers trauma after an accident license suspension Barrington Illinois estate planning lawyer auto accidents independent contractor Buffalo Grove employment lawyer Palatine real estate lawyer in terrorem provision Schaumburg employment law attorneys holiday statistics Illinois elder law attorney Illinois mortgages Illinois traffic attorneys construction accidents Palatine probate lawyer residential real estate trustee overtime violations dealing with problem employees motorcycle accident lawyer underfunded trust Des Plaines sexual images Illinois insurance claim dispute lawyers Barrington drug crime attorney traffic offenses golf accidents defective products insurance claim denial Rolling Meadows insurance attorney Arlington Heights TBI attorney Barrington real estate lawyer Rolling Meadows boating crash lawyer Illinois rollover accident lawyers Palatine traffic accidents Long Grove estate planning attorney Barrington medical malpractice lawyers Long Grove estate planning Barrington personal injury attorney Schaumburg construction accident lawyer Palatine law firm vacation home tax attorney Illinois DUI attorney Rolling Meadows real estate attorney Colin Gilbert Chicago corporate attorney startup company Illinois employee rights attorney. Barrington workers compensation attorney comparative negligence CAM Deer Park accident attorney Inverness personal injury attorney social media after death Des Plaines claims law firm Deer Park employment law attorney Attorney Ken Apicella Illinois traffic attorney natural gas explosion digital assets, digital fiduciary, estate planning, digital content, Long Grove estate planning lawyers Palatine Attorney Illinois insurance attorney insurance claim dispute attorney workers comp rollover accidents Crystal Lake medical malpractice law firm dog bites Crystal Lake will lawyer car crash Inverness insurance attorney Rolling Meadows medical malpractice lawyers DUI penalities Chicago traffic lawyer probate process drunk driving Barrington employment attorney Inverness estate planning lawyer defective products lawyer distracted driving accident victims boating accidents workers compensation benefits Deer Park workers compensation lawyer Whistleblower Claims criminal law traffic violations defense denial of life insurance Rolling Meadows accident lawyer Long Grove real estate attorney Barrington employment law firm Des Plaines accident attorney Long Grove wills and trusts attorneys traffic violations Schaumburg employment attorney DGAA Crystal Lake insurance lawyer federal crimes Illinois food poisoning insurance denials healthcare IRA benefits Illinois law Barrington business law firm Illinois construction accident attorney Chicago attorney Inverness accident lawyer insurance claim denials Buffalo Grove law firm Rolling Meadows traffic attorney Crystal Lake accident attorney Jay Andrew Crystal Lake law firm boating DUI privacy Family Medical Leave Act Illinois defective products attorney modern family estate planning liens Arlington Heights criminal lawyer Illinois jet ski accident lawyer Arlington Heights wills and trusts lawyer license reinstatement foreclosure corporate law home inspection lawyer trusts Rolling Meadows tax attorney preventable medical errors real estate Mt Prospect Attorney loopholes Des Plaines criminal attorney Arlington Heights medical malpractice lawyer commercial leasing traumatic brain injuries Barrington estate planning attorney criminal defense eluding a police officer Schaumburg drug defense lawyer healthcare claims Arlington Heights Traffic Lawyer Crystal Lake medical malpractice attorneys Palatine civil attorney Palatine punch death Illinois corporate lawyer digital information contracts Schaumburg real estate lawyer paid sick leave deadly crashes Des Plaines civil attorney jet ski Rolling Meadows corporate lawyer hit and run accident automated cars Self-Directed IRA Accounts real estate leasing School Visitation Rights Act Arlington Heights insurance attorney PTSD Buffalo Grove criminal defense lawyer Palatine elder law attorney Illinois trusts attorney South Barrington real estate attorney minimum wage medication errors Rolling Meadows criminal attorney Palatine civil litigation lawyer speeding denied insurance claim liability claims medical malpractice estate planning attorney IRELA Illinois LLC creation Des Plaines collections attorney Des Plaines personal injury attorney Illinois insurance disputes mass shooting attorney fees Chicago insurance claim attorneys small business Illinois workplace discrimination attorney Buffalo Grove insurance claim dispute lawyers Arlington Heights traffic attorney caregiver dram shop law clemency Illinois trucking safety civil rights violation Rolling Meadows insurance claims Detainer Actions field sobriety test living wills pet bites employment law Rolling Meadows traffic law firm Riverwoods estate planning lawyer creditors Illinois small business Illinois criminal defense attorney Schaumburg corporate attorney Rolling Meadows insurance lawyer Chicago employment lawyer Chicago car accident lawyer Arlington Heights car crash attorneys Barrington Traffic Lawyer FMLA Inverness injury lawyer medical malpractice claims Inverness probate lawyer Palatine traffic lawyer insurance attorney Arlington Heights pedestrian accidents revenge porn Chicago estate planning lawyer trench injuries head on collisions whistleblower protections personal injury attorney wills Exclusions Palatine corporate law attorneys pedestrian accidents employees Illinois personal injury lawyer Long Grove real estate lawyer truck collisions Retaliatory Discharge Rolling Meadows employment law attorney insurance claim delay Illinois employment law controlled substance

Archive