Early 2022, client set up an irrevocable trust - main purpose of
which was to protect assets in the event she has to go into
long-term care. Yes, she is aware of the 5 year lookback period.
For whatever reason, she decided to place her personal residence
in the trust. She is paying a monthly rent amount into the trust
so the trust has the funds to pay insurance, taxes, repairs, etc.
on her house.
Per information provided by the attorney, it appears the trust is
or can be treated as a grantor trust - therefore, everything
should be reported on the taxpayer's Form 1040 instead of Form
1041.
Client does not have any access to the bank accounts nor deposits
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
2 questions if anyone has any help they can provide regarding the
personal residence.
1. The house - when sold whenever or transferred to the heirs
if/when trust was terminated - would no longer qualify for the
exclusion of gain from sale of residence up to $250,000. (there
should not be any gain near this amount any way.) The basis would
be the lower of cost or fair market value when placed in the
trust, correct?
2. Since this appears it is to be treated as a grantor trust, how
does the activity surrounding the personal residence get reported
on client's tax return? Income / expenses reported on Schedule E
..... and if there is a loss, would it be allowed? If a loss
would not be allowed (if there is one) when filed as grantor trust
on client's Form 1040, can a Form 1041 be filed and be allowed to
report a potential loss on the personal residence and then passed
through to client's 1040 via K-1?
FYI - besides the personal residence, the rest of the trust is
farmland.
Thanks
Cathy Herber
Cathy H <chew...@gmail.com> wrote:
Early 2022, client set up an irrevocable trust - main purpose of
which was to protect assets in the event she has to go into
long-term care. Yes, she is aware of the 5 year lookback period.
For whatever reason, she decided to place her personal residence
in the trust. She is paying a monthly rent amount into the trust
so the trust has the funds to pay insurance, taxes, repairs, etc.
on her house.
Per information provided by the attorney, it appears the trust is
or can be treated as a grantor trust - therefore, everything
should be reported on the taxpayer's Form 1040 instead of Form
1041.
Client does not have any access to the bank accounts nor deposits
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
2 questions if anyone has any help they can provide regarding the
personal residence.
1. The house - when sold whenever or transferred to the heirsYes, to qualify for that exclusion the person has to both own and
if/when trust was terminated - would no longer qualify for the
exclusion of gain from sale of residence up to $250,000. (there
should not be any gain near this amount any way.) The basis would
be the lower of cost or fair market value when placed in the
trust, correct?
live in the property for two of the prior five years. She no longer
owns the property. If it's sold within three years of when she
transferred it to the trust, she can probably qualify for the
exclusion. Otherwise not.
2. Since this appears it is to be treated as a grantor trust, howAs a grantor trust, all assets and income in the trust are taxed just
does the activity surrounding the personal residence get reported
on client's tax return? Income / expenses reported on Schedule E
..... and if there is a loss, would it be allowed? If a loss
would not be allowed (if there is one) when filed as grantor trust
on client's Form 1040, can a Form 1041 be filed and be allowed to
report a potential loss on the personal residence and then passed
through to client's 1040 via K-1?
as if she still owned the property. If there's a sale at a loss and
she would be able to take the loss as the owner, she can take it as
the grantor of a grantor trust. The only time a 1041 should be filed
is after she dies.
FYI - besides the personal residence, the rest of the trust is
farmland.
Thanks
Cathy Herber
--
Stu
http://DownToEarthLawyer.com
Client does not have any access to the bank accounts nor depositsAll the facts relating to retained powers are not present in the original post. Therefore, I would like to know how the attorney concluded that this trust could be considered a grantor trust.
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
On Tuesday, March 28, 2023 at 8:45:45 AM UTC-7, Stuart O. Bronstein wrote:
Cathy H <chew...@gmail.com> wrote:
Early 2022, client set up an irrevocable trust - main purpose of
which was to protect assets in the event she has to go into
long-term care. Yes, she is aware of the 5 year lookback period.
For whatever reason, she decided to place her personal residence
in the trust. She is paying a monthly rent amount into the trust
so the trust has the funds to pay insurance, taxes, repairs, etc.
on her house.
Per information provided by the attorney, it appears the trust is
or can be treated as a grantor trust - therefore, everything
should be reported on the taxpayer's Form 1040 instead of Form
1041.
Client does not have any access to the bank accounts nor deposits
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
2 questions if anyone has any help they can provide regarding the personal residence.
1. The house - when sold whenever or transferred to the heirsYes, to qualify for that exclusion the person has to both own and
if/when trust was terminated - would no longer qualify for the
exclusion of gain from sale of residence up to $250,000. (there
should not be any gain near this amount any way.) The basis would
be the lower of cost or fair market value when placed in the
trust, correct?
live in the property for two of the prior five years. She no longer
owns the property. If it's sold within three years of when she
transferred it to the trust, she can probably qualify for the
exclusion. Otherwise not.
2. Since this appears it is to be treated as a grantor trust, howAs a grantor trust, all assets and income in the trust are taxed just
does the activity surrounding the personal residence get reported
on client's tax return? Income / expenses reported on Schedule E
..... and if there is a loss, would it be allowed? If a loss
would not be allowed (if there is one) when filed as grantor trust
on client's Form 1040, can a Form 1041 be filed and be allowed to
report a potential loss on the personal residence and then passed
through to client's 1040 via K-1?
as if she still owned the property. If there's a sale at a loss and
she would be able to take the loss as the owner, she can take it as
the grantor of a grantor trust. The only time a 1041 should be filed
is after she dies.
FYI - besides the personal residence, the rest of the trust is
farmland.
Thanks
Cathy Herber
--
Stu
http://DownToEarthLawyer.com
I just want to raise a caution flag. In order for an irrevocable trust to be considered a grantor trust the grantor has to have some power to control or direct the trust's income or assets. The original post has this statement:While I'm not a lawyer, a good point is raised. I will make inquiry. For whatever reason, the attorneys have made it abundantly clear that my client is not to touch the assets - even suggesting that disbursements from the trust to go an account
Client does not have any access to the bank accounts nor depositsAll the facts relating to retained powers are not present in the original post. Therefore, I would like to know how the attorney concluded that this trust could be considered a grantor trust.
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
On Tuesday, March 28, 2023 at 3:31:48 PM UTC-5, Alan wrote:
On Tuesday, March 28, 2023 at 8:45:45 AM UTC-7, Stuart O. Bronstein wrote:
Cathy H <chew...@gmail.com> wrote:
Early 2022, client set up an irrevocable trust - main purpose of
which was to protect assets in the event she has to go into
long-term care. Yes, she is aware of the 5 year lookback period.
For whatever reason, she decided to place her personal residence
in the trust. She is paying a monthly rent amount into the trust
so the trust has the funds to pay insurance, taxes, repairs, etc.
on her house.
Per information provided by the attorney, it appears the trust is
or can be treated as a grantor trust - therefore, everything
should be reported on the taxpayer's Form 1040 instead of Form
1041.
Client does not have any access to the bank accounts nor deposits
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
2 questions if anyone has any help they can provide regarding the personal residence.
1. The house - when sold whenever or transferred to the heirsYes, to qualify for that exclusion the person has to both own and
if/when trust was terminated - would no longer qualify for the exclusion of gain from sale of residence up to $250,000. (there
should not be any gain near this amount any way.) The basis would
be the lower of cost or fair market value when placed in the
trust, correct?
live in the property for two of the prior five years. She no longer
owns the property. If it's sold within three years of when she transferred it to the trust, she can probably qualify for the
exclusion. Otherwise not.
2. Since this appears it is to be treated as a grantor trust, howAs a grantor trust, all assets and income in the trust are taxed just
does the activity surrounding the personal residence get reported
on client's tax return? Income / expenses reported on Schedule E
..... and if there is a loss, would it be allowed? If a loss
would not be allowed (if there is one) when filed as grantor trust
on client's Form 1040, can a Form 1041 be filed and be allowed to report a potential loss on the personal residence and then passed through to client's 1040 via K-1?
as if she still owned the property. If there's a sale at a loss and
she would be able to take the loss as the owner, she can take it as
the grantor of a grantor trust. The only time a 1041 should be filed
is after she dies.
FYI - besides the personal residence, the rest of the trust is farmland.
Thanks
Cathy Herber
--
Stu
http://DownToEarthLawyer.com
controlled by the trustee and then he will make distributions from that account to my client. So, it may smell more like an entity that needs a 1041 return. If it turns out to be a grantor trust, it appears the rental income / expenses from her personalI just want to raise a caution flag. In order for an irrevocable trust to be considered a grantor trust the grantor has to have some power to control or direct the trust's income or assets. The original post has this statement:While I'm not a lawyer, a good point is raised. I will make inquiry. For whatever reason, the attorneys have made it abundantly clear that my client is not to touch the assets - even suggesting that disbursements from the trust to go an account
Client does not have any access to the bank accounts nor depositsAll the facts relating to retained powers are not present in the original post. Therefore, I would like to know how the attorney concluded that this trust could be considered a grantor trust.
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
ThanksIf it is a grantor trust then the rental income and expenses would go on the personnel 1040. Reporting of losses on rental property is limited for non-professionals. First off, the investment has to be at risk. Secondly, Rental income is considered
CathyActive participation
--
On Tuesday, March 28, 2023 at 8:45:45 AM UTC-7, Stuart O.
Bronstein wrote:
Cathy H <chew...@gmail.com> wrote:I just want to raise a caution flag. In order for an irrevocable
Early 2022, client set up an irrevocable trust - main purposeYes, to qualify for that exclusion the person has to both own and
of which was to protect assets in the event she has to go into
long-term care. Yes, she is aware of the 5 year lookback
period. For whatever reason, she decided to place her personal
residence in the trust. She is paying a monthly rent amount
into the trust so the trust has the funds to pay insurance,
taxes, repairs, etc. on her house.
Per information provided by the attorney, it appears the trust
is or can be treated as a grantor trust - therefore, everything
should be reported on the taxpayer's Form 1040 instead of Form
1041.
Client does not have any access to the bank accounts nor
deposits nor pays any of the expenses. Her son (as trustee)
transfers money to her as needed.
2 questions if anyone has any help they can provide regarding
the personal residence.
1. The house - when sold whenever or transferred to the heirs
if/when trust was terminated - would no longer qualify for the
exclusion of gain from sale of residence up to $250,000. (there
should not be any gain near this amount any way.) The basis
would be the lower of cost or fair market value when placed in
the trust, correct?
live in the property for two of the prior five years. She no
longer owns the property. If it's sold within three years of when
she transferred it to the trust, she can probably qualify for the
exclusion. Otherwise not.
2. Since this appears it is to be treated as a grantor trust,As a grantor trust, all assets and income in the trust are taxed
how does the activity surrounding the personal residence get
reported on client's tax return? Income / expenses reported on
Schedule E ..... and if there is a loss, would it be allowed?
If a loss would not be allowed (if there is one) when filed as
grantor trust on client's Form 1040, can a Form 1041 be filed
and be allowed to report a potential loss on the personal
residence and then passed through to client's 1040 via K-1?
just as if she still owned the property. If there's a sale at a
loss and she would be able to take the loss as the owner, she can
take it as the grantor of a grantor trust. The only time a 1041
should be filed is after she dies.
FYI - besides the personal residence, the rest of the trust is
farmland.
Thanks
Cathy Herber
--
Stu
http://DownToEarthLawyer.com
trust to be considered a grantor trust the grantor has to have
some power to control or direct the trust's income or assets. The
original post has this statement:
Client does not have any access to the bank accounts nor depositsAll the facts relating to retained powers are not present in the
nor pays any of the expenses. Her son (as trustee) transfers
money to her as needed.
original post. Therefore, I would like to know how the attorney
concluded that this trust could be considered a grantor trust.
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