MASSACHUSETTS: My dad and his 3 brothers created a Investment Property Trust in 1970. Within the Trust there are 4 properties that contain commercial rental buildings. Three of the four brothers and 2 of their wives have passed away. The trust has successfully passed on to the children/wife of the deceased beneficiaries and provides a monthly income to us as the new beneficiaries.
My Uncle Sam (86),is the Trustee and the last Original Beneficiary. He has managed the properties through the years. He now wants to dissolve the Trust and form a LLC, as the original Trust will terminate upon his death.
We received the proposed LLC paperwork last week, after reading through the papers the other beneficiaries and I agree that Uncle Sam is not being fair to us. We do not want to sign the proposed LLC paperwork as it currently reads.
We see 2 options:
1. Try and negotiate a better LLC agreement with Uncle Sam.
2. Wait until Uncle Sam passes, trust will terminate, property passes to us beneficiaries as tenants in common. We then draft new LLC paperwork and pray we can all then agree on a fairer arrangement. We do not want to sell any of the properties.
------My Question pertains to above Option 2.---------
When Uncle Sam passes, the Original Trust terminates. We believe that the property will pass to us, the beneficiaries, as tenants in common. We do not know or understand what the tax
ramifications, if any, that will occur when the deeds of the property pass to us, out of the current original trust, upon Uncle Sam’s death.
There are 5 current beneficiaries.
Beneficiaries 1 (Uncle Sam) owns 25%,
Beneficiaries 2 owns 25%,
Beneficiaries 3 owns 25%,
Beneficiaries 4 owns 12.5%,
Beneficiaries 5 owns 12.5%
Section 754 IRS code was used to Step up Basis of the portions of properties that passed upon Original Beneficiaries deaths to their children/wife. They passed away in different years.
Accountants Compilation Report shows Capital End for 2012
Beneficiary 1 $108,849 (Original Beneficiary 31 #1 Uncle Sam)
Beneficiaries 2 , $392,826 (Wife of Original Beneficiary #2 inherited in 1992)
Beneficiaries 3, $996,524 (Only Child of Original Beneficiary #3, inherited in 2010)
Beneficiaries 4 , $689,056 (Child of Original Beneficiary #4 inherited in 2012)
Beneficiaries 5 , $689,056 (Child of Original Beneficiary #4 inherited in 2012)
Properties were appraised Aug 2012 at $5,690,000.
Can you help us understand the tax liabilities
/ramifications when the deeds of the trust properties pass to us as tenants in common, when Uncle Sam passes? And would there be any tax cost of putting the properties back into a LLC. (other than the cost of setting up a new LLC)
Thanks for any assistance you can provide.