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

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

Archive