Nominee Trust and residence sale

[Kram BergGold]

In 2002 my client and her husband placed their residence in a nominee trust. In 2005 the husband died and in 2006 the house was sold. It was a primary residence for 40 years.
Given this set of facts I feel the wife gets a 50% step up (does not qualify for 100% step up because of pre 1977 ownership or community property rules) ) and then section 121 exclusion. Does everyone agree?
Now the wrinkle. At the time the nominee trust was set up an irrevocable trust was set up as well. One clause states all real esate owned by the grantors was to be in the irrevocable trust. However the irrevocable trust was intentionally written with clauses which made it defective. The house was titled to the nominee trust and sold by the nominee trust. So my feeling is I just ignore the irrevocable trust. Any thoughts?

[Roland Slugg]

See another lawyer

Dear Kram BergGold

I've never heard of a "nominee trust." Is it just a different name for a "grantor trust?"

The irrevocable trust was intentionally written with clauses which made it defective.

You can't be serious! However, if there are doubts regarding the bona-fides of that trust, or the other trust, the wife should have everything reviewed by a qualified estate attorney.

If both trusts can be ignored, then W will definitely have a stepped-up basis in half the house, and, perhaps in all of it. Even if only half, her $250k §121 exclusion may be sufficient to eliminate all of the gain from taxation.

[Kram BergGold]

Roland

Yes, a nominee trust is another name for a grantor trust.

[BOB W]

Trusts

My understanding is that a trust (Rev or Irrev) needs to be funded in order for it to valid.

[Roland Slugg]

More reason to see a new attorney

My understanding is that a trust (Rev or Irrev) needs to be funded in order for it to valid.

Very good point. However, if the nominee/grantor trust [Thanks KBG for clarifying the terminology] required that the house be transferred into the irrev. trust, this could be a serious issue. I'd definitely have a qualified estate lawyer look into it.