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


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