Q: Family Trust, California Tax Liabilities, Reporting: Is there a threshold on the taxable amount each sibling receivers?
Family Trust and California Tax Liabilities: I am the Trustee and we (five siblings) sold my Mother’s home in 2022 following her passing. There are no other assets besides the home and no outside debt or other financial obligations.
At what level (Amount) are we’re obligated to claim the trust in our taxes? Taking into consideration the appraisal of the home following our mother’s passing (2015), the improvements put into the home following her passing the final amount each sibling received was approximately $211,000. However, the entire estate (Which each sibling received) was about twice this amount.
Follow-up question. One of my siblings is incarcerated and will be for the next several years (8+). What obligation do we have in reporting his part of the Trust? He’s never had a real job, property, assets and has probably never filed taxes.
A:
As the Trustee of your family trust, you may have tax reporting obligations to the state of California, depending on the amount of taxable income generated by the trust.
In California, trusts are subject to income tax if their taxable income exceeds a certain threshold, which varies depending on the type of trust and the tax year. For tax year 2022, for example, California imposes a tax rate of 9.3% on taxable income over $58,634 for single filers and $117,268 for joint filers.
If the sale of your mother's home resulted in taxable income for the trust, you may be required to file a California tax return on behalf of the trust and report the income to each beneficiary. The amount of taxable income that each beneficiary would need to report on their own tax return would depend on their share of the trust and their individual tax situation.
Regarding your incarcerated sibling, if they are a beneficiary of the trust, they would still be entitled to their share of the trust income, but their share may need to be managed differently due to their incarceration. You may want to consult with a tax professional or attorney to understand your options and obligations in this situation, as it may depend on the specific terms of the trust and the laws of the state of California.
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