Finance Questions? Ask a Financial Expert for Answers ASAP
OK, first, are you talking about a revocable living trust that became irrevocable when your parents died and you are the sole successor trustee?
What were their dates of death?
Yes. Dad died in Nov of 2010 and Mom died May 2nd this year.
OK, so all of their remaining assets were in the trust?
Well, you would have a couple of things that need to be done, tax wise:
First, you'll need to file your mother's final income tax return for the period 1/1/13 - 5/2/13.
Can that be done now?
Then, if the trust has any income subsequent to the date of your Mother's death, you will need to file an income tax return for the trust on Form 1041 for the period subsequent to 5/2/13 through that period until the assets are all distributed or 12/31/13, whichever comes first.
No. You'll need to wait on the 1040 until the forms come out; possibly no return will be required depending on the amount of her income.
What is the nature of the assets in the trust and approximately what is the total?
You may be able to make the distributions ASAP & there should be very little income tax involved, if any.
She has not had to file any taxes cause she really did not have an income. She was 90. My sister has been doing taxes for her and nothing ever had to be paid. We sold the house and the proceeds went into the trust account. It is about !30K.
Is that 130K, in some sort of bank account?
You hit ! rather than 1 :]
Was the house in the trust?
or did you sell it as Executor of your mother's will?
Yes. We closed her account, and opened an account in the revokable trust name. I am the sole check signer as requested in the will. We sold the house as executor of the will. No assets were mentioned in the will or trust, only to divide it up 3 ways when all is said and done.
OK, well you can just go ahead and make the distributions before the trust generates any income that would require a tax return; did you get a tax id number for the trust?
So, was the title to the house in your mother's name or was it in the name of the trust?
What date was the closing on the house?
The house was sold and was in the trust, I believe but the deed said their name. I'm not right in front of those paper right now. The house closed June 13th.
Well, the reason I'm asking, is that if the house was in the name of the trust & you signed a deed as TRUSTEE, then you will need to file a fiduciary return for the trust on form 1041 to report the sale of the house at no gain or loss. If you didn't get formally appointed (by the court) as EXECUTOR after your mother died, then you wouldn't have been able to sell the house until you did that.
So, it sounds like you will need to file a return for the trust as I stated above. But at this point there's no reason not to distribute the assets of the trust to the beneficiaries. There should be no tax involved.
I can go get the papers to make sure. I did sign as trustee, and also have an ein number, as that had to be obtained before I could take over the bank account or sell the house.
Right, but the ID number is XXXXX the name of the trust, correct?
The only thing that sounds strange, is that there should have been a deed from your parents to the trust and the title should have been in the name of the trust.
I just am concerned that if I distribute the money, and then find out at tax time there is tax due, I would have to try to get the money back, and that could be difficult.
I have all the papers from the sale. I will run up and get them. Back in a second
Without that, I'm not sure that I understand how you were able to sell the house as the trustee of the trust.
There should be no tax as the tax basis of the house would be stepped up to the fair market value at the date of death; generally when their is a sale within 6 months or a year after the date of death, the gross selling price is considered the best indication of the fair market value at the date of death also. Therefore, there is no gain on the sale and as a matter of fact, there may be a long term capital loss that can be distributed to the beneficiaries and used on their personal income tax returns. The loss would result from any closing expenses, such as a real estate commission, deed stamps, etc. related to the sale of the house.
It looks like the deed was in the trust, and I am the executor of it. That is why the money from the sale went into the trust bank account.
Not the executor, the Successor Trustee?
What document are you looking at that is calling you the Executor?
If you have a copy of the trust, you should be named in that document as the Successor Trustee.
Trusts don't have Executors.
The difference is where the sale should be reported.
Okay, Im not an expert here, other than I am in charge of taking care of the business. I am looking at the Revocable trust agreement between my parents name and the settlors. I have read thru the 8 pages and it says at the end, in the event of death I am the successor trustee.
Right, good, that's normal. I understand you aren't an expert, that's why I'm being careful to make sure I give you the correct requirements.
So to summarize:
The house was sold in California. The trust account is here in Iowa with me.
Your sister can file or determine no final personal income tax return is required for your mother.
You will need to get a fiduciary income tax return completed for the trust. It will probably be a good idea, particularly since other siblings are involved, to have a CPA prepare the necessary fiduciary returns for the trust.
So, you mother was a resident of California?
You can use a local (to you) ie, Iowa CPA to prepare the Federal & CA Fiduciary returns for the trust.
Yes. My 2 sisters still live in California. Will The siblings have to pay tax on the amount they get?
No tax will be due on the sale of the house.
Okay, I was worried about the local cpa or trying to find one in Ca.
I'm in MA & do returns all over the country, including CA; most CPAs are the same. Just ask your CPA if he's comfortable doing fiduciary returns for both federal and CA.
So your best advice is to have a local CPA file the Fiduciary returns. Can that be done now?
No. You haven't even made the distributions to the beneficiaries yet. One other question:
Did you pay a real estate commission on the sale of the house?
If that means, Did I pay a realtor, then yes.
Yes it does. It should be clearly stated on your closing documents. As I noted above, that may generate a loss on the sale that is deductible as a long-term capital loss & passed through to the beneficiaries in the final year of the trust. In your case there should only be 1 fiduciary return for 2013 (one for Federal & one for CA), so each beneficiary should get a Form K-1 for their personal tax information for calendar 2013.
The money is in the trust in the bank in California.
The K-1s are part of the fiduciary return on Form 1041.
As long as there are no other expenses, if I were you, I'd probably keep $5,000. in the account until the end of the year, and distribute the rest now.
Just in case something comes up unexpectedly and you'll need a few hundred $ to pay the CPA to do the returns. Plus, even this expense (JustAnswer.com) is deductible by the trust & you should be reimbursed for it.
Are you typing? If so hit enter.
I wasnt The EIN number any help?
What do you mean?
The Trust has it's own EIN. I am not sure what I am supposed to do with that, but do know I couldnt sell the house or take over the bank account without it. Like I said this is all new to me.
The EIN number will be used when the fiduciary returns are prepared.
Other than that, you don't need to do anything with it.
If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;
Okay. So back to the question. What should I do in order. Do you recommend distributing all the money and close the account or leave something in. Do you still recommend a local cpa, or do you do things like this?
1. You should reread this conversation; you'll see I suggested keeping $5,000. in the account & distributing the rest.
2. A CPA in Iowa will be easier for you to work with & less expensive than a CA CPA too,
We can't perform services for customers of JustAnswer.com.
Okay then. Well I will give you high marks, of which you deserve. I will re read it all and thanks again for the help. Best regards, Dave
If you need help finding a local CPA, go to the "Iowa Society of CPAs" website & they should have a free referral service there where you can get names of CPAs close to you.
Okay, that sounds great. I will do that for sure.
Then you can call them and ask if they are familiar with Fiduciary returns for Federal & MA & if so, set up an appointment
Don't be afraid to ask questions
The only dumb question is the one you don't ask.
I'm here if you need me; just ask for me.
Haha. Very good advice. Thanks again.
U R Welcome