My deceased father had a trust. My sister, the trustee, sold my father's vehicle to her brother-in-law. The brother-in-law sent a check for my portion ( I am a beneficiary) directly to me from his checking account. Does the sale of this vehicle not need to pass through the trust, therefore being documented as an asset being sold from the trust, and therefore, should I not be paid for my portion with a check issued from the trust? I will not cash the check until I know that this transaction is legal. Also, are proceeds from this sale taxable to me?
Generally, distributions from trust are not taxable unless you are distributing an IRA or a tax deferred annuity. There are exceptions to this rule, but a distribution from the sale of a car by the trust is most likely not taxable to you or the trust. To answer your first question, the car was most likely not in the trust so the sale does not need to pass through the trust. More often than not, personal property is not in a trust. Therefore, proceeds from the sale of the personal property does not necessarily have to be made payable to the trust. There is nothing illegal about this transaction. I would encourage you to memorialize the transaction in writing. For example, an email to your sister confirming that you are cashing the check in exchange for your interest in your father's car. Good luck.
Your brother-in-law should have paid your sister and she should have received the proceeds into the trust bank account. By paying you directly, your sister should simply credit that amount against the share you ultimately receive. When she prepares her trust accounting, she will need to list the transactions that occurred while she was trustee. This money that should have gone to the trust will probably be characterized simply as a preliminary distribution to you.
Money that comes to you as a beneficiary distribution is not taxable income to you. There is the possibility that you receive "distributable net income" from the trust, which you would pay the tax on instead of the trust paying the tax, but your sister's attorney and accountant will let you know about that (and that should only happen when the overall tax burden will be less, taking advantage of lower tax rates of individuals compared to trusts). If it gets to that point, you should ask your accountant.
