I’m trying my best here with the legal terms. I hope I’m doing it right. We will be consulting a professional before actually doing anything. This is mainly for us to see the picture more clearly as we loosely plan our next step.
Background: I am very lucky to have generous and responsible parents. A year ago, they placed the house that they were in (California) into a living trust where I (only me) am the beneficiary trustee. Since then, they’ve moved out to pursue whatever retirement dreams they have and my wife and I have moved in to save money. They’ve also given me POA (for each parent) over any matters that the house would be involved in. In short, they’ve given me a lot of financial freedom with regards to House. If it wasn’t due to tax reasons, the ownership would be transferred to me already.
Question: We would like to move to a different county and start a family. If I owned the house outright, I would either sell or rent it and use the proceeds to buy our place. However, the house is owned by the trust that my parents set up and we have no idea how trusts work when transactions are involved.
Scenario: Selling; If we sell the house, do the proceeds go to the trust? Would the trust be the “buyer” of the next house? Say, we sell the current house for 300k and the next house costs 400k, I assume we would be putting in 100k of our own money into the sale?/trust? to make up the difference. Would there be a split in ownership? We’d like to avoid putting our own money into the trust itself JUST in case my parents resumes control of the trust and we’re out 100k.
Scenario: Renting it out; I assume the rental income goes to the trust? Would the trust be paying income taxes? Can I, as a beneficiary trustee, collect a salary from the trust? Would the rental income be doubly taxed (once by the trust and once by paying me)? In short, how can I get money of the trust legally without paying a lot of taxes?
Thank you so much for any advice you can give. If there are any other things that my wife and I should be looking at, we welcome the pointers. 🙂 Our finances are relatively simple beside this one.
One last question: Should we be asking a financial advisor or a trust lawyer about these concerns?
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