Q: A husband passed away, leaving a sizable estate. His wife, also a US citizen, was the executor and the initial sole beneficiary. However, due to US tax law concerns, it was decided she shouldn't receive all the assets. With her agreement, their three adult children sought court orders to receive a piece of income-generating real estate from the estate.
Because of delays in refinancing after the husband's death, the mother has only recently become the legal owner of the land, acting as executor and trustee under both the will and court orders. For various reasons, the family prefers she keeps legal ownership instead of transferring it to the children.
If she keeps legal ownership, who gets taxed on the property's income? Her as the trustee, or the children? The children can ask for the property to be transferred to them anytime, but for now, they're okay with her holding onto it.
A: Without specific wording in the will changing things, it boils down to where the estate administration stands. Depending on your preference, there are two scenarios:
-
If you want the mother to be taxed as the trustee holding the property for the children, it's seen as part of estate administration. Since there's another full financial year left where estates get tax breaks, this approach keeps things under estate administration.
-
If you prefer the children to be taxed on the property's income, the mother, as executor, can declare an interim distribution of the property to the children based on their share. Then, they'd be responsible for taxes. But this hinges on what the will says about the executor's powers.
If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.
