irrevocable trust

[TAX4US]

Trust holds 1 rental property consistly showing loss each year. No distributions to beneficary all years. Question? Trust wants to sell house reinvest in cd's etc and not make a distribution to the beneficary. I think tax wise could the trust sell the RE pass out the capital gain to the beneficary or does the trust have to pay the tax then pass out tax free the $ and thus close down the trust? Beneficary is a daughter (40 yrs old). Mom and dad originally set the trust up to keep it out of Nursing home attachment but Dad died shortly after trust was set up. Daughter really wants to give money back to mom as this was their original house. Mom bought new house 5 years ago when this was done after dad died. Not sure all this is revelent. Thanks

[Gary2]

I think tax wise could the trust sell the RE pass out the capital gain to the beneficary or does the trust have to pay the tax then pass out tax free the $ and thus close down the trust?

This will depend on the requirements of the trust documents. What distributions does the trust allow?

[taxea]

Who is trustee and what is trustee's authorization

[Burke]

Trust holds 1 rental property consistly showing loss each year. No distributions to beneficary all years. Question? Trust wants to sell house reinvest in cd's etc and not make a distribution to the beneficary. I think tax wise could the trust sell the RE pass out the capital gain to the beneficary or does the trust have to pay the tax then pass out tax free the $ and thus close down the trust? Beneficary is a daughter (40 yrs old). Mom and dad originally set the trust up to keep it out of Nursing home attachment but Dad died shortly after trust was set up. Daughter really wants to give money back to mom as this was their original house. Mom bought new house 5 years ago when this was done after dad died. Not sure all this is revelent. Thanks

As Gary said, it depends entirely on the trust document and what it says about distributions, termination, etc. Never do a trust tax return at any time without the document. However, if the trust has the power to sell the house, (which is usually the case ) and it does not distribute the money, the capital gains/losses remain in the trust. Usually these trusts are set up for the spouse's benefit while living, and then at spouse's death, the assets pass to the remainder bene (daughter?) If it is allowed to distribute the $$$ to the beneficiary, the trust would then terminate -- assuming this is the only asset. Then the cap gains/loss could pass to the bene, whoever it is, on the K-1. You say daughter is bene -- but is she the remainder bene or the current bene? Normally, a trust does not allow the $$ to be distributed to a remainder bene when the current bene is still living. Tax to bene would depend on bene's individual situation. If the house itself were distributed to the bene, at least she could take the passive losses on the rental. The trust cannot. The basis would not change.

[Burke]

I have modified my first post somewhat for clarity. However, you bring up another issue. If the house was put into the trust to protect it from Medicaid, and the daughter is in fact the only current beneficiary, then whether selling the house or distributing the house and having the daughter sell it (if the trust allows it) will incur cap gains tax at some level. Giving the $$$ back to Mom does not solve the original problem. Then Mom has a cash asset which can be attached, and the daughter has gift tax issues.

[TAX4US]

am getting copy of trust aggrement this weekend so will have time to persue it. I gather from mom that daughter is trustee and also beneficary. Mom doesn't get anything from trust unless daughter gives it to her. I think passing out cg to daughter or trust paying tax would depend on tax rates for each. Any way must read trust aggrement first.

[Burke]

Daughter can be trustee; and Mother can still be the current bene, with daughter as remainderman. Trustee is the one who has the power to make distributions according to the controlling document. Just out of curiosity, post what you find when you have looked it over.