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

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

Archive