1099S- Nominee?

[kathyc2]

Clients father is still living.
Fathers house is in name of trust-- assuming living revocable but not confirmed.
Client is listed in trust.
In 2014 father sold house, and would qualify for the 2/5 exclusion.
Title company issued 1099S in name of client for his "share" and refuses to change name to just father or trust.

What the heck am I supposed to do with this?

[Possi]

similar situation

My client's wife got the rental house in the divorce. He got a 1099S for half the sale. It will go on her tax return, so I was hoping I could put it in and out on his return, or deem it nominee income somehow, because it will go on her return.

So, I'm most interested in responses to your question.

[Gary2]

Clients father is still living.
Fathers house is in name of trust-- assuming living revocable but not confirmed.

Confirm it.

Client is listed in trust.

As what? Settlor? Trustee? Beneficiary? Trust asset?

In 2014 father sold house, and would qualify for the 2/5 exclusion.
Title company issued 1099S in name of client for his "share" and refuses to change name to just father or trust.

What do you (or they) mean by "share"? Is it not the entire proceeds? What do the trust documents say about who gets the proceeds? This could be really simple, as in clearly a revocable trust and thus taxable to the grantor, or it could be complicated.

More generally: Form 8949 has a code N for asset sales of a nominee, so as far as the mechanics are concerned, it's perfectly possible to report a nominee sale, and even more straightforward than doing so on Sch. B.

[kathyc2]

I readily admit trusts are not my forte. My understanding is that anything other than a living revocable would need to have a K1 to report the gain. Am I not correct on that?

The client said his 1099S is his "share", so I don't have further info currently. My client, his sister and the father all received 1099S forms for what the title company determined were appropriate amounts

Thanks to your help, I do see from IRS instructions, code N available on 8949 and they reference it can come from a 1099B or 1099S. So, it looks like I need to fight with my ProSeries to figure out how to input it so N will show up.

[Gary2]

A revocable trust is always a grantor trust, but not every grantor trust is a revocable trust. IRC sections 671 through 679 discuss the various ways in which a trust might qualify to be taxed to the grantor (or other substantial owner) rather than the beneficiaries or trust itself.

But I was also suggesting that you read the trust document to see what it says about distribution of the assets.

[Roland Slugg]

I would lay long odds that the title company did it correctly. The title officer saw the deed and determined the legal ownership and in what proportions. The 1099-S forms were then issued to those owners/sellers for their respective shares.

The dad may have owned HIS share in his RLT, but the son and dau (or their own RLTs) were surely owners of separate shares/interest of "dad's" house. They may have helped him buy it, or dad may have given them portions at some time in the past. That's what you need to find out, as it will have a direct affect on the basis for each of them and, thus, their gains. If they have a loss, then the whole thing becomes moot.

[Burke]

If the Dad was still living in the house and titled it in the name of the Trust, (see the deed) then there is a life estate situation. If sold while he was still living, then it is split using the appropriate factors in the IRS tables. He may be able to exclude his share under 121. The trust/kids will not. It will be a capital gain to them.

[kathyc2]

If the Dad was still living in the house and titled it in the name of the Trust, (see the deed) then there is a life estate situation. If sold while he was still living, then it is split using the appropriate factors in the IRS tables. He may be able to exclude his share under 121. The trust/kids will not. It will be a capital gain to them.

Let's assume for the moment that Dad was grantor and trustee and kids are beneficiaries. Am I correct that if we were talking about stock rather than house, the entire stock sale would be reported to Dad? You are saying that real estate is handled differently? If the kids are just beneficiaries how/what/when would basis have been established for them? Thanks.

[Burke]

No, the real estate is not handled differently. An interest in a personal residence, in which the Father (or grantor) continues to live is considered a Life Estate. The full and complete signing over of stock certificates to the children would not be, unless the giver/donor continued to receive the income (dividends/cap gains) from those stocks. Then that would be an incomplete gift. In either case, if the property is then sold while the donor is still living, it does not get stepped-up basis.

In this case, there is the added circumstance that some kind of trust is involved, and we still don't know what kind of trust that is, which may determine how this is treated. If it is an RLT and the properties were in the trust, then it is disregarded and all would go on the father's return. Since the real estate sale was handled in another fashion, the question arises, what type of trust is this? Get a copy of the trust document.

[kathyc2]

Clients came yesterday with their paperwork, and what he was telling me on phone was not what the papers say. Surprise!

HUD statement shows house in names of 4 kids. My client 1099S for 1/5 of proceeds.
HUD statement line 506 shows proceeds to Nxx Family Trust.

So I called the title company while client was here as client told me that title company told him to show the proceeds and then back them out. Title company did not "remember" telling client that and could not tell me why split was 5 ways instead of 4.

Title company then e-mails me copies of some docs. In 2001 parents filed a quit claim deed to kids while reserving a life estate. Then again in 2005 parents filed a quit claim to Nxx Family Trust. Both quit claims were stamped as received by gov't and both were prepared by attorneys although different ones. It doesn't make sense to be how they could quit claim property that they no longer own.

Then at closing the HUD is in names of kids but money went to Trust. Client is saying he's not paying tax on money he didn't receive. Two of his siblings went to H&R with their 1099's and were told to just ignore them, other sibling went to preparer in KS and 1099S was reported and then backed out.

Clients income is low enough that even on gross proceeds (no idea of any basis yet) they would be at zero LTCG rate. So, the only thing at play is an non-resident MN return which I roughly calculated between 1,000 and 1,500 depending on basis.

Dad is 90 years old and in assisted living, and I'm guessing when he passes there will also be a big mess. The clients are good people and I've been doing their returns for over 15 years. Adding to it she is undergoing cancer treatment so I'm not wanting to add stress to their lives. The fun of being a tax preparer!

[Burke]

Interesting. But we still don't know what type of trust this is. Get the trust document. Your client should have it. Regardless of whether they "could" legally do it or not, the parents apparently had the house re-titled into the trust's name. If they retained the right to sell in the original deed, then they could do it. But I think that is a moot point at this stage of the game. Perhaps it was titled to the kids AND the trust the second time, which would explain the 5-way split. The deed would tell you that. I doubt if that is what happened. It would serve no purpose. The title company should have had better sense than to 1099 it to 5 different parties and then pay all the funds into the trust. I don't blame the client for not wanting to report it.
Unfortunately, somebody has to, somewhere. And it is sounding like the trust.

[kathyc2]

Interesting. But we still don't know what type of trust this is. Get the trust document. Your client should have it. Regardless of whether they "could" legally do it or not, the parents apparently had the house re-titled into the trust's name. If they retained the right to sell in the original deed, then they could do it. But I think that is a moot point at this stage of the game. Perhaps it was titled to the kids AND the trust the second time, which would explain the 5-way split. The deed would tell you that. I doubt if that is what happened. It would serve no purpose. The title company should have had better sense than to 1099 it to 5 different parties and then pay all the funds into the trust. I don't blame the client for not wanting to report it.
Unfortunately, somebody has to, somewhere. And it is sounding like the trust.

My client does not have the trust document, he was not even aware of the titling changes until a couple months before the sale when he was sign off. He called his Dad, and Dad said he has never filed a trust return. Since he's in assisted care, I'd say chances that him still having knowing where the original trust document is would be slim to none. Since the trust it titled Nxx Family Trust rather than recovable trust of (parents names) would that not indicate that it is a trust that is separate entity from the owners and trust returns should have been filed all along?

The second quit-claim deed:

For valuable considerations, (dad and mom's names), husband and wife, Grantors, hereby convey and quitclaim to The Nxx Family Trust, dated 10/24, 2005, (parents names) Trustors, and/or Trustees, Grantee, real property in XX County, MN describe as follows: (legal description of property)
Consideration of this conveyance does not exceed $500.

[Burke]

You cannot tell what kind of trust it is just by that name. It could be a revocable trust or not. It could be that the lawyer that did the 2nd deed was the same lawyer that did the trust. Sounds like it might have all been done at the same time. IF that is the case, the attorney would have a copy of the trust document in his files. Depending on the state and locality where the real estate is located, it may be on file at the local courthouse along with the deed. AND if the trust had any other liquid assets like stocks, etc. the brokerage that holds them in the name of the trust might also have a copy on file. There may be a copy in a safe deposit box somewhere. Have your client run this down. He will have to eventually anyway when the father dies. Might as well have a handle on it now.

But, regardless, the 2nd deed tells you the property was titled to the trust. And that is why all the money went into the trust. Would be interested to know how this turns out.

[kathyc2]

You cannot tell what kind of trust it is just by that name. It could be a revocable trust or not. It could be that the lawyer that did the 2nd deed was the same lawyer that did the trust. Sounds like it might have all been done at the same time. IF that is the case, the attorney would have a copy of the trust document in his files. Depending on the state and locality where the real estate is located, it may be on file at the local courthouse along with the deed. AND if the trust had any other liquid assets like stocks, etc. the brokerage that holds them in the name of the trust might also have a copy on file. There may be a copy in a safe deposit box somewhere. Have your client run this down. He will have to eventually anyway when the father dies. Might as well have a handle on it now.

But, regardless, the 2nd deed tells you the property was titled to the trust. And that is why all the money went into the trust. Would be interested to know how this turns out.

I've requested the trust doc's from client...

For what it's worth I found on the county GIS site that they list owner name as "father & mother & trustors or trustees" if that means anything.

I still don't see how the title company could give the proceeds to one place and the 1099's to others. Arrggghh!

Thank you so much for trying to help me sort this out...

[kathyc2]

Oh, and there is another paper from Remax that states:

This amendment is adding the additional fee owners to the purchase agreement.
Names of all kids and their spouses.
This property is in a Trust, and Dad is Trustee of the Trust


My client and wife signed this paper.