Question : If a living trust is dissolved and tax liabilities are imposed afterwards, who is responsible to pay the tax?
My brother (Executor), sister and myself are the beneficiaries of our mother and step-father's living trust. They are both deceased and we are dissolving the trust. If any tax liabilities or other costs are discovered after the trust proceeds are dispursed equally between the three parties, who would be responsible for the liabilities? Are all three parties held equally responsible? Can they come back only on the Executor or any one of the three parties?
- asked by Property Line Curiosity
All Answers:
Answer #1
You'll have to see a lawyer in your state on thisone, buddy. It's too dicey. And don't see justany lawyer, see one who specializes in trusts. With trusts you'd be surprised how few regular oldlawyers know what's going on with them.
- answered by fortitudinousskeptic
Answer #2
You should wait to distribute the proceeds untilthe taxes are paid, then would be a good idea tohold some back for another year or two (anaccountant could give you an idea of how much tohold back) until you're sure there won't be anymore expenses.
- answered by Judy
Answer #3
Judy's right. Make sure you brother has filed allof the tax returns both income and estate tax. The IRS will give him a closing letter for theestate taxes after they have gone through thereturn. The IRS can go after the executor andafter the beneficiaries, up to the amount eachbeneficiary has received from the estate.
- answered by mattapan26
Answer #4
If your brother has filed all of the necessaryfederal and state tax forms and he has received aclosing or tax clearance letter from the IRS andthe state he can distribute the assets withoutfear of coming back at him as the executor.Anyassets or liabilities that come up afterdistribution would the responsibility of each ofyou. That said any expenses should not come upbecause they would be presented after the statuteof limitations has runs on the two estates. Otherassets should be minor and each of you should pickup your share of the taxes.If a significant assetis found your brother may have to reopen theprobate with the court.
- answered by waggy_33
Answer #5
My brother (Executor), sister and myself are thebeneficiaries of our mother and step-father'sliving trust. They are both deceased and we aredissolving the trust. If any tax liabilities orother costs are discovered after the trustproceeds are dispursed equally between the threeparties, who would be responsible for theliabilities?<<responsible. Are all three parties held equallyresponsible? Can they come back only on theExecutor or any one of the three parties?<<may yield different answers. But I would guessjointly or severally.You should really seekcompetant tax advise on this issue. Depending onthe amount of the trust and where you live, youmight be surprised that some favorable taxsituations may exist.And be ware, that you mustconsider bith income and estate taxes.\Forexample, if you live in an estate tax-free statesuch as Florida and the trust is up to$2 million.You would have no federal or state estate taxes. In addition, if the trust has stocks and bonds,the value of the date of death, as opposed to theoriginal cost, would be the determinate factor incalculating the gain (hopefully the case). Thismight prove to be a favorable income taxsituation. A Living Trust is a taxable entity nowthat the grantors have left us.Contact the CPAsociety in your state for a referral.Good luck.
- answered by DAVIDMCPA
Answer #6
Technically the executor is solely responsibleunless he files Forms 4810 (request for promptaudit) and Form 5495 (release from personalliability). That is what professional bankexecutors routinely do before closing estates.
- answered by spicertax
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