Trusts and Capital Gains

[Opto]

Hi,

A friend has a revocable living trust. She would like to sell an option to buy a 50% interest in her house, to be executed at the time of her death.

The option would be to purchase 50% of the property for $600,000 with an option payment of $340,000 . If the option is not exercised the trust will give a non-interest bearing note for the option money, to be paid upon the sale of the house.

The questions concerns capital gains tax.

1. Will the trust be liable for any capital gains tax on the option or fair market value?

2. Does the beneficiary need to sell her half interest in the property to avoid capital gains tax?

3. Could the trust retain it's half interest and sell at a later date without paying the tax?

 

[Opto]

Well, I see that I am not allowed to edit my posts so I hope anyone answering will read this before posting a reply. This an evolving agreement and things have changed. The new agreement is the following, and this is very close to what the final arrangements will be:


A friend has a revocable living trust. She would like to sell an option to buy her house, the option to be exercised at the time of her death.

The option payment would be approximately $350.000. If the option is not exercised the trust will give a note for the option payment, to be paid upon the sale of the house. The purchase price of the house at the time the option is exercised will be $1.2 million plus ½ of the difference between $1.2 million and the current market value.

The question concerns capital gains tax.



1. Will the trust be liable for any capital gains tax on the option or the fair market value at the time of death of the grantor?