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My wife's mother's will established a trust to be made from all of her monies and the sale of all of her properties. Money from the trust fund will be given to my wife and her twin sister every month. We are talking about over a million dollars in the trust fund once it is set up which will take about a year.

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Thanks Garden for your informative answer. The trust is being created as various bank accounts are combined into this trust, plus CDs, etc. and the sale of a lot of property. The property will take some time to sell. Real estate moves slowly up there. My SIL and the lawyer are co-executors of the estate and are jointly in charge of the trust once it is all together. I believe that it will be taxable given her other income plus our filling jointly with my income.

My FIL died back in 1998. Bless his heart, he died a broken man who had been enslaved by his narcissistic/borderline wife for years.
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CMagnum, the money may or may not be taxable, depending on how it affects your wife's and your SIL's income. So it has the potential to be taxable, depending on their individual incomes.

But, a clarification: a Will can only pour-over assets into a Trust; it doesn't establish a Trust. That has to be accomplished by a Trust document, executed by in this case your MIL.

And for the Trust to be "funded", all those assets would have had to be retitled into the Trust, before MIL died. Was this done?

If it's a Living Trust, the Trustee will be required to prepare Schedule K-1s along with the annual Form 1041, The K-1s detail the Trust's income and offset deductions, providing a net taxable amount for the Trust. That amount is apportioned across the two heirs' individual income tax liability, assuming they share equally.

Each heir receives a Schedule K-1 and uses that to determine what her liability is, and whether or not taxes are due.

Is there some reason why about a year is required for funding to begin? Was that a provision of the Trust?

A trust of that size most likely is going to require a trust attorney and/or a trust accountant.

I hope you're planning on retaining a Trust attorney and Trust accountant. This is going to be a complex Trust to manage, and professional help will be needed.

Is your FIL still alive?
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it seems it would still be an inheritance? and like geewiz said 'tax' on the earnings(interest earned) on the principal. (there is a large amount someone can inherit without paying tax) even the interest earned may fall on the deceased estate and not the person inheriting.
my mom inherited cash plus cash from sale of property. but it was just deposited in her accounts. and I didn't have to report the income in her taxes.

edit: the only thing I had to do was get a letter from the real estate agent stating the value of the property hadn't increased from date of death to sold date. (capital gains)
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I believe that earnings on the principal in the trust are taxable. But the principal is not. Hence, if distributions consist of earnings + principal, the earnings part is taxed.

BUT . . . ask whomever assists you in the establishment and funding of the trust.
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It will be income so I think it would be.. but check with the trust lawyer.. that is his /her job
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