My father passed away at the beginning of this year. We have been working with an estate attorney and our accountant to settle his estate and secure my mother's financial future. With the professional fees rising, I've turned to the masses to get an education.
Location is Massachusetts with estate tax kicking in at $2 million.
Father's assets have thus far been transferred from revocable trust to credit shelter trust (CST). We need to reduce the total to below the $2M estate tax level. (Total assets of parents well under current federal levels.) The original trust allowed for post death separation into CST, QTIP and Marital Share. So if we leave $2M in CST the balance (~$2M) goes to QTIP or Marital Share.
Terms of original trust state that all net income from CST and QTIP to be distributed to my mother. So here's where my questions start:
1. Dividends and interest from CST and QTIP go to my mother and she pays taxes at her marginal rate. No taxes from dividends and interest are due from either CST or QTIP. What happens with capital gains? My preliminary understanding is that realized capital gains (or losses) stay in the CST or QTIP and would be subject to higher tax rates than my mother's. Is this true? Should I be careful about leaving growth equity (stock/fund) in the CST because if sold in future after price appreciation, taxes will take a big bite?
2. What are the tax benefits - either annual income taxes and ultimate estate taxes - of choosing QTIP over Marital Share? Note: we're not a blended family and my mother is elderly and not likely to remarry, so we do not need to protect assets over concern that my mother would not distribute my father's assets as he wished. Thus I wonder why bother with the QTIP, just give excess of CST to my mother.
3. Does the QTIP have its own TIN like the CST does? I can see that this adds to annual accounting fees. The CST will require form 1041 filed. QTIP as well?
4. After my mother passes, there would be no step up in the CST assets while the QTIP would receive a step up. Is that true? This suggests to me that my mother could build more generational wealth with fewer dollars in the CST and more in the QTIP or Marital Share. (I'll note that some math would be helpful comparing the Mass. estate tax my mother's estate would bear to the step up basis with 15% or 20% LTCG tax heirs would pay plus state taxes.)
5. As I am being mindful of the future income tax implications of income generated by my mother's trust (plus the Marital Share that could be added from my father's assets) and the QTIP and the CST, I have to consider the separation of assets among CST, QTIP and Marital Share. He has a number of bonds (corporate and municipal) with unrealized losses. And because the bonds were purchased at a premium to par, even when the bonds reach maturity (or get called), there will be a long term capital loss. So I think, maybe leave some stocks with unrealized gains in the CST and sell them as bonds mature - matching gains to losses. (This assumes the stocks are still showing gains at that time!). Then a tax free distribution to my mother or heirs.
Thank you for any advice!
Location is Massachusetts with estate tax kicking in at $2 million.
Father's assets have thus far been transferred from revocable trust to credit shelter trust (CST). We need to reduce the total to below the $2M estate tax level. (Total assets of parents well under current federal levels.) The original trust allowed for post death separation into CST, QTIP and Marital Share. So if we leave $2M in CST the balance (~$2M) goes to QTIP or Marital Share.
Terms of original trust state that all net income from CST and QTIP to be distributed to my mother. So here's where my questions start:
1. Dividends and interest from CST and QTIP go to my mother and she pays taxes at her marginal rate. No taxes from dividends and interest are due from either CST or QTIP. What happens with capital gains? My preliminary understanding is that realized capital gains (or losses) stay in the CST or QTIP and would be subject to higher tax rates than my mother's. Is this true? Should I be careful about leaving growth equity (stock/fund) in the CST because if sold in future after price appreciation, taxes will take a big bite?
2. What are the tax benefits - either annual income taxes and ultimate estate taxes - of choosing QTIP over Marital Share? Note: we're not a blended family and my mother is elderly and not likely to remarry, so we do not need to protect assets over concern that my mother would not distribute my father's assets as he wished. Thus I wonder why bother with the QTIP, just give excess of CST to my mother.
3. Does the QTIP have its own TIN like the CST does? I can see that this adds to annual accounting fees. The CST will require form 1041 filed. QTIP as well?
4. After my mother passes, there would be no step up in the CST assets while the QTIP would receive a step up. Is that true? This suggests to me that my mother could build more generational wealth with fewer dollars in the CST and more in the QTIP or Marital Share. (I'll note that some math would be helpful comparing the Mass. estate tax my mother's estate would bear to the step up basis with 15% or 20% LTCG tax heirs would pay plus state taxes.)
5. As I am being mindful of the future income tax implications of income generated by my mother's trust (plus the Marital Share that could be added from my father's assets) and the QTIP and the CST, I have to consider the separation of assets among CST, QTIP and Marital Share. He has a number of bonds (corporate and municipal) with unrealized losses. And because the bonds were purchased at a premium to par, even when the bonds reach maturity (or get called), there will be a long term capital loss. So I think, maybe leave some stocks with unrealized gains in the CST and sell them as bonds mature - matching gains to losses. (This assumes the stocks are still showing gains at that time!). Then a tax free distribution to my mother or heirs.
Thank you for any advice!
Statistics: Posted by Saver59 — Sun Dec 22, 2024 12:38 pm