Revocable Trust and Sale of Property

[peggysioux]

Taxpayer's mother had a revocable trust with her personal residence as an asset held in trust. Mother passed away in 2015. Trust reads that asset was to be disbursed to beneficiaries after Settlor's death. The closing statement for the sale of the residence lists the Living trust as the seller. Would a trust return need to be filed with K-1's to the beneficiaries showing the disbursement of the funds? I would have thought that the asset would have been disbursed to beneficiaries and then sold. The daughter stated that the property was put into her name so she could sell the property, but the closing statement shows differently. I would appreciate input on the correct handling.

Peggy Sioux

[taxea]

That would have been the smart way to do it. Deed it to the beneficiaries then sell it. Unless you can prove that the revocable trust was null and void and all assets were passed from the trust to the trustee without need for a 1041 with K-1's to the beneficiaries you will have to do the 1041 because it was sold while an asset of the trust.

[peggysioux]

That would have been the smart way to do it. Deed it to the beneficiaries then sell it. Unless you can prove that the revocable trust was null and void and all assets were passed from the trust to the trustee without need for a 1041 with K-1's to the beneficiaries you will have to do the 1041 because it was sold while an asset of the trust.

Thank you for your response and confirmation that a 1041 does need to be filed. I am handling the tax return of one of the beneficiaries and wanted to make sure I was correct that a 1041 needs to be filed being home was sold under the name of the trust. The beneficiary said that the attorney transferred the asset into the beneficiary's name so that the property could be sold and that beneficiary was one of the co-trustee's of the trust. There were five beneficiaries of the asset so I was unsure why the attorney would have only transferred asset into one of the beneficiaries' names. But then when I reviewed the closing statement of the sale of the property, it showed the trust as the seller, not the beneficiary/trustee. There seems to be a few issues with the handling of the asset and don't know if the taxpayer misunderstood the attorney or the attorney had some reason not to transfer to beneficiaries prior to sale.

Peggy Sioux

[DonB]

Thank you for your response and confirmation that a 1041 does need to be filed. I am handling the tax return of one of the beneficiaries and wanted to make sure I was correct that a 1041 needs to be filed being home was sold under the name of the trust. The beneficiary said that the attorney transferred the asset into the beneficiary's name so that the property could be sold and that beneficiary was one of the co-trustee's of the trust. There were five beneficiaries of the asset so I was unsure why the attorney would have only transferred asset into one of the beneficiaries' names. But then when I reviewed the closing statement of the sale of the property, it showed the trust as the seller, not the beneficiary/trustee. There seems to be a few issues with the handling of the asset and don't know if the taxpayer misunderstood the attorney or the attorney had some reason not to transfer to beneficiaries prior to sale.

Peggy Sioux

Evidently the deed was never filed. Agree a 1041 is required. I always take selling expenses and with a stepped up basis, you will have a loss to distribute.

[taxea]

the purpose of the 1041 in this case is distribution of assets via K-1 to beneficiaries. Since the trust got the 1099s for the sale, the proceeds are distributed from the 1041.

[DonB]

the purpose of the 1041 in this case is distribution of assets via K-1 to beneficiaries. Since the trust got the 1099s for the sale, the proceeds are distributed from the 1041.

Wouldn't the trust subtract it's basis first?

[Burke]

Well, sure. You file a Sche D (1041) showing proceeds less basis + expenses. The loss will pass through on the K-1's if it is a final return, assuming there is a loss. If a gain, that passes through as well.