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About John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Trust disbursement
Expert: John Stancil, CPA
Date: 10/7/2008
Subject: Trust disbursement
Question
Hello,
My sister died in 1999. I was the successor trustee of her living trust. In her trust, she left my two then-minor children about $32,000 each. She specified that these funds be placed in trust for the children. There was no specific language in the living trust and no documents were drawn up to establish the childrens' trusts. I consulted a CPA at that time, and she told me to just get the EINs from the IRS. I established a simple trust for each child, complete with EINs. The trusts were invested in mutual funds, and sustained huge losses when the market imploded in 2000. I moved the remaining funds into CDs. I have filed 1041s each year, and the losses are still being carried forward on each return, so the trusts have not generated any taxable income yet.
Both children are now adults, and are full-time students. I want to distribute these funds to them soon and dissolve the trusts. Can this be done without causing them a huge tax hit? I assume I will have to prepare K-1 forms for the distributions. Will this be taxed as ordinary income to them? If I give it to them in $10,000/year increments, will they be able to avoid taxes? Can this money be considered to be gifts to them, since it was left to them by my late sister?
Thanks for your help.
Chris
Answer
Chris,
Thanks for your question.
Based on your description, there should be no taxes involved since the trust shows losses. They would only have to pay income taxes if the trust had income that was passed on to them. With no income, there are no income tax consequences. They may be able to deduct the losses on their taxes.
Hope this helps.
John Stancil, CPA
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