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My grandfather recently passed away, triggering the distribution of funds from trusts he established some time ago. The trust contains a variety of financial assets (bonds, stocks, ETF's) but no physical assets. Trying to navigate the tax implications of this situation is complex. From my understanding, there are no estate or inheritance taxes at play because the distribution is coming from a trust rather than an estate. What I'm not clear on yet is if this distribution will hit us as income for the year, or if that varies based on the type of asset being distributed. Do those tax implications change if we just say "give us a cash distribution" instead of taking the financial assets in-kind? We intend to seek the help of a professional in this matter, but I figure the more information we've got the better. Our gross income this year will be just south of $200k, and the trust distribution will likely total to something just north of $100k. We don't have any immediate need for that money, with the exception of starting a college fund for our first child that is due in a couple months.
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Sorry for your loss. The inherited principal (amount at date of death) is not taxable, but any earnings from date of death forward are. So if you inherited a stock, say, that was worth $10 a share on the day your grandfather died, and you sell it later for $15 a share, you'll be taxed on $5 per share as a capital gain. (If you keep the stock but it pays out dividends, you'll be taxed on the dividends paid after the date of death. Same for interest earned on bonds or cash deposits, etc.)
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