Legal Question in Real Estate Law in California

Re: Cap Gains Tax & Trustee

Your capital gains tax is paid as part of your income tax for the year in which you eventually sell the property. Deferrals through "1031 exchanges" can often be arranged.

As to Question #2, some trusts pay taxes on earnings including capital gains, but many trusts are by their nature pass-through entities and the taxes on trust profits and gains are paid by the beneficiaries, not the trustees. If you are both a trustee and a beneficiary, you'd be paying the tax in your capacity as a beneficiary. As with Q#1, the naswer is that capital gains taxes are paid along with other income taxes for the year in which the gain is realized by disposition of the property.

Question #3 -trustee's rights...... First, you should be thinking in terms of powers, not rights. The powers of a trustee are as specified in the trust document. It is rather common for trustees to be given the power to sell trust property, including houses, but the timing and conditions of that power may be restricted.

I strongly advise getting personalized legal advice before arranging or participating in any deal where property is given free, particularly where there is an estate-planning purpose, because it is usually a tax-planning boo-boo; use of a living trust produces better results, not only by avoiding probate and deferring capital gains taxes, but also by significantly reducing the taxes when due. I also advise anyone acting in the capacity of trustee to get legal coaching on the powers and duties of a trustee under the terms of the specific trust they're trying to administer.

The consequences of mis-management can be severe.