Trust

[S T]

T/p was the successor trustee on death, non related. Only asset in Trust was the deceased's primary residence. DOD 12/5/05. Property sold 2/06.

Trustee immediately placed the home for sale, and received an offer in contract of $600,000. The offer did not close, as the purchaser could not qualify for the loan.

Subsequent offer 6 weeks later was received for $580,000, when appraisal was done for loan purposes, appraisal was $570,000 so the trustee lowered the sales price to $570,000. Property closed at sales price of $570,000.

Error on the part of the trustee that they did not obtain professional appraisal of property at time of death. So question is, what FMV at DOD to use for Trust return? $600,000, $580,000 or $570,000?

Thanks

Sandy

[DTS]

House

Sandy,

Did the t/p set the intial price according to comps in the area? Sounds like he might have because of the offer he first obtained.

I'm sure you can contact a realtor in the area this house is located in and they will be able to tell you quickly. I did this last year and was able to obtain comps several years back for this one property for a situation just like this. The realtor faxed a copy to my client and we went from there.

Dennis

[jancpa]

Trust

It is the trustee's duty to determine the FMV of trust assets as of the date of death, not to run out and get appraisals on the date of death.

Ask the appraiser if s/he would have appraised the property materially differently 6-8 weeks earlier. Probably not, so the later appraisal could be used.

An appraisal is not the only measure of FMV. FMV is the price a willing and able seller would accept from a willing and able buyer, assuming neither party is forced into the transaction and both are similarly knowledgeable about the property. There is therefore a good argument for using the second offer, $580,000, as FMV.

You can also use comparable sales around the time of death to determine FMV.

Or you can average the whole lot!

What matters is that whatever you use be reasonable and supported by objective evidence.

[S T]

It is the Trustees Duty

It is the Trustees Duty to handle the estate correctly, and I pointed that out. As the trustee she did not even think she had to file a form 1041 after applying for a EIN#. So we had a discussion regarding that amongst some other issues that didn't seem to be handled so correctly.

I could have the Trustee go back and research through a realtor the comps, but that can also be subjective rather than objective. And the trustee just wants to be done with the whole issue. It will be an open and close form 1041.

If I use the $580,000 which is the original (2nd) offer prior to the appraisal for loan purposes, the 1041 is still going to have a loss, due to the sale expenses, which will be passed through to the beneficiaries. I just don't want the loss to be overstated.

The trustee also had to pay a supplemental tax on the property, after the fact, as the tax assessor stated that the property had a step up for property values during the time that the trustee held the property prior to sale from DOD to Sale Date. I disagree with that and suggested that the Trustee appeal it.Should have all been passed through to the new buyer.

So would you take the payment of the assessment on the 1041 or on the trustee's form 1040, and if she wins the appeal, and refunded (highly unlikely) show as income in 2007.

Thanks,

Sandy

[DTS]

Fmv

Since the first offer was done willingly by two parties, couldn't an argument be made that would be FMV? However, given the rate property values escalate in CA, you would have to have some DOD price to start with to make sure $600,000 is not too high.

Dennis

[Gretel]

Hi Sandy, no comment on assessment.

I agree with Dennis that 600,000 was a price a willing buyer wanted to pay. To me this is even a better determination of FMV than an appraisal is. That the first buyer didn't get the loan has nothing to do with FMV.

Each month the prices are going down in real estate in CA, so the appraisal done with second buyer does not give you FMV as DOD.

To support this opinion I would get comparable sales as DOD and make a common sense descision.

[erchess]

Would you believe no basis at all?

In the eyes of the company where I started work in the tax business, inherited property was either appraised in the period starting two weeks before dod and ending two weeks after dod or there was no basis in the property. Period. One day off you say? Too bad. I hasten to add that this was a nationwide company and I worked in only two areas, and both were in the same sub-region and region. I may have been experiencing therefore the attitude of one highly placed individual.