Who pays the capital gain?
We have a client who passed away owning a NQ Annuity. The beneficiaries of the annuity were three separate trusts. This annuity has about $90,000 of capital gain and we are wondering if the client’s Estate pays the capital gain before the assets are payed out to the trusts or if the trusts pay the capital gain based on their portion of the assets received?
Permalink Submitted by Alan - IRA critic on Mon, 2015-10-26 17:59
There is no capital gain for an annuity distribution. Gains are all taxed as ordinary income. In this case, the trust will report the ordinary income on their share of the gains, and either pay taxes at the higher trust rates or pass the income through to the trust beneficiaries annually and the income would then be taxed at the trust beneficiary’s individual rates. The client’s estate will not report distributions made after the client’s death unless the estate was the beneficiary.