Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
My little understanding of these trusts is that, to optimize inheritance tax exemptions, a trust is set up in such a way that when one of her parents dies, my wife "inherits," but actually the second parent has full use of the trust during his or her lifetime.

In most of these trusts I've seen, your wife would not inherit anything at the death of one of her parents. The money is usually put into a trust where the income is to the benefit of the surviving parent, but the children are the ultimate beneficiaries of the principal. So your wife would not have any claim on the trust until both of her parents pass away, and there would be no effect on her taxes until then.

However, each trust is unique. As difficult as it is, she probably needs to talk to her parents about the specifics of their trust. It's especially important if she is named as a successor trustee.

I'm trying to figure out, if my wife inherits money through a by-pass trust, whether that will affect our income taxes during the period between the death of one parent and the death of the second.

So to answer your initial question more directly, in most cases the trust would not affect your wife's taxes until the second parent passes away. However, you need to read the specifics of this trust to make sure that is the case here.

--Peter
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.