Living trust sale of home

[thomtax]

I have used the search feature and have not found an answer, so apologize if this has already been answered.

Situation:

Individual has home in a living trust and has lived in the home for 15-20 years. The individual dies and the home is sold by the executor of the trust, with the proceeds being divided among the three children When selling the home, the company handling the closing demanded a social security number of the seller, and the ssn of the deceased was given.

What ramifications do you forsee for things being handled in this manner?

Thanks for your input and as far as one of the benificiaries is concerned, does anything special need to be done. The estate was well under the limits.

[OldJack]

I don't see any problem as the beneficiary simply reports the 1099 gross sale price on his 1040 Sch-D with some description such as "Inherited RE" and takes the stepped-up basis as his cost with little or no taxable gain/loss.

The closing company is simply taking the approach that it is not the estate that is selling the property rather it is the trustee acting on behalf of the beneficiary. Had the trustee obtained a trust or estate ID# they would probably have reported it that way.

[taxfun]

taxfun

OldJack:

Would it be incorrect in your opinion for the estate to file a return in this case, and K-1 all beneficiaries?

[OldJack]

>>Would it be incorrect in your opinion for the estate to file a return in this case, and K-1 all beneficiaries?<<

It would appear that the estate does not have a federal ID number and would have to get one in order to file a 1041 to report the sale. If the estate did file k-1's the individual would still have to report the sale as the 1099's are going to be in their social security number and the proceeds must be accounted for on their 1040 Sch-D. I would just take the position, if questioned, that the estate distributed the property to the beneficiaries and the trustee on their behalf sold the property for them.

[Snaggletooth]

Living Trust Ignored

Jack, I thought the IRS ignores living trust instruments and considers the property still to be that of the parent. Do I have this confused with something different, or am I missing something?

[natiro]

living trust

Actually, the revocable living trust becomes an irrevocable trust at death. It sounds like the trustee sold the house inside the trust and then distributed the proceeds. The trust should file a 1041 to report the sale, and each beneficiary will get a K-1 reporting their share of distributed income. It sounds like the sale will be reported on 1099S to the decedent's social security number. If there is concern about this reporting, you can always report in on the decedent's final 1040 and then back it off with a notation "reported on Form 1041 by EIN XX-XXXXXXX."

Unless I'm misreading the prior posts, I don't think the sale was reported under the beneficiaries' social security numbers. . . it was reported under the decedent's ssn.

Also, although there may also be an estate, this transaction is a trust transaction and not an estate transaction. If the trust is going to file a return (which I believe it should), you will need to get and EIN for the trust (if that hasn't been done already) and file Form 1041, as a complex trust, using a calendar year end.

Snag is correct about the revocable living trust being ignored by the IRS. However, this changes at death, when the trust becomes irrevocable. At date of death, the trust becomes a separate entity and should file as such if required to.

[OldJack]

Unless I'm misreading the prior posts, I don't think the sale was reported under the beneficiaries' social security numbers. . . it was reported under the decedent's ssn.

Well... Natiro is correct. I misread the original post and thought the beneficiary's social security number had been given for closing. The trust should file form 1041, pay the income taxes or pass the gain on to the beneficiaries by the K-1. It is usually best to pass the gain to the beneficiaries for taxes.

[Kram BergGold]

To clarify

We all agree the trust files a 1041 because the trust became irrevocable upon death. However if the basis is stepped up, which I think it does, I would imagine that there will be a loss not a gain which will get passed to the Beni's.