Estate Tax Return

[peggysioux]

Father of taxpayer died in 1995. Taxpayer obtained an EIN # for estate/trust. They filed no 706 or 1041 from 1995 until 2008. Father owned house with a mortgage at date of death. In 2009, taxpayer filed a 1041 tax return as a "decedent's estate" return marked and name shows "JoBob's Family Trust". I am going to request the trust document from taxpayer but was hoping to get a few things clear in my head first....

1. Is it normal for an estate to go on from 1995 to current? Taxpayer began renting the house in 2010 but did not file a return.

2. I ffirst thought that maybe the house had been put into the trust; however, the taxpayer gave me a copy of a mortgage statement that she wanted to claim as a deduction on estate tax return, but statement is in father's name and father's social security #. Mortgage statement is not in trust's EIN #. I would not think house would be in trust if loan is still in father's name - is my thought process correct?

3. Shouldn't the property be transferred to beneficiaries by now if not in trust?

Any help you can provide will be greatly appreciated.

[Koss]

Family Trust

Wow, sounds like you've got a real mess.

The house might have been put into a revocable trust while the guy was still alive. A revocable trust is usually a grantor trust, which means it's a disregarded entity. If that's what he did, that would explain why the mortgage loan continued under his name. A revocable living trust does not really change the ownership. It is recognized as valid estate planning tool. But if you explain it properly to a mortgage lender, and give them a copy of the trust, they usually don't care if you transfer ownership. The house can be deeded to the trust, but no changes are made to the mortgage.

But when the grantor dies, the trust becomes irrevocable. The bank should have been notified long ago. The death of the borrower almost always means that the mortgage loan must be paid off or refinanced by the new owner (i.e., someone who is alive).

It is surprising, to say the least, that the bank has not raised the issue in all these years, because banks have ways of finding out that people are dead.

If the bank finds out now, they're likely to have a cow. Someone at the bank might jump to the conclusion that the family intentionally withheld information about the death, or that they intentionally misled the bank. Regardless of whether that's what happened, the family might get a really nasty letter threatening foreclosure if they don't pay off the loan in full within 30 days or something.

Is there a surviving spouse involved? That might have allowed the mortgage loan to continue. Maybe the servicer just never took his name off the loan.

I agree that there's no way the estate should have remained open that long.

A 1041 for a trust should not be marked as an estate.

Somebody really fouled this up, and it's going to take a lot of investigation to unravel it. You may even have to get a lawyer involved.

BMK

[peggysioux]

Estate Tax Return

There are three children; no wife. I told taxpayer we would need to get an extension to sort this out and for some reason she did not think that the estate tax return would effect her return. The estate definitely had a profit from the rental in 2011, but at this point unsure if monies were distributed to beneficiares. I was also surprised that the 2009 tax return was done by a tax office,but it was marked "non-preparer" return. I am hoping I will know more when and if I receive the trust document. I would think that the estate would not be able to deduct ther interest from the mortgage if loan is in decedent's name and social. Am I correct in my thinking? The tax office from 2009 did deduct the mortgage interest on tax return.