I feel kind of ghoulish for asking this, but how do trusts work?
Background:
My father-in-law passed away last week and had an amount in two trusts, one for him and one for his wife who passed away ~15 years ago, that he was loving off of (+SS and a pension.) He was pretty private with his finances so we never really knew what was going on, although he lived well enough that we assumed he didn't need any financial help.
My wife and her sisters met with the lawyer last Friday to discuss how the trusts are structured and meeting with the bank today to get the actual amounts in the trusts. From what I can tell, trusts can be set up to do just about whatever the person that sets it up wants, but the lawyer did say my wife and her sisters have the option to either distribute the funds from the trust to them or roll the trusts for FIL & MIL in to trusts for each of the siblings (there are probably other options, but my wife isn't very comfortable with financial discussions. I'm not either, but I muddle through.)
The lawyer also indicated there there were tax advantages to waiting until next year to do whatever we end up doing with the funds. What could those advantages be? I thought a trust's funds passed outside of probate and the amount we're talking about isn't anywhere near the limit for inheritance taxes to kick in ($11m, right?) I also thought the cash basis reset on the date of the death of the beneficiary, so wouldn't moving the funds ASAP minimize potential capital gains?
If we roll the funds in to a new trust, how would we access the money?
If we take the disbursement, I know my wife will want to pay off the house (there's almost certainly going to be enough to do that.) Some rough Excel work I did seems to indicate we'd end up with more money in the end by investing that amount and paying the mortgage as usual. Which way is generally recommended?