Irrevocable trust

[TAXMAN]

What we have: Irrevocable trust set up by dad and he put his residence in it. Trust has been renting property for several years. Dad has died and beneficary of the trust wants to give property to mom. Trust has not been allowed to deduct loss across the years. When trust distributes property to beneficary?

1: what happens to suppended losses?

2: what may be the basis for the propery going to beneficary as FMV is greater than basis of property put in the trust along with the depreciation allowed or not allowed due to loss positions.

3: will beneficary have ghost income due to this distribution?

The beneficary of the trust and mom have been to an attorney to get proper deeds done. It looks like trust gifted property to beneficary and beneficary gifted to mom. Mom is continuing to rent property for the income.

What do you think answers for the 3 questions may be?

Many thanks.

[TAXMAN]

Just bumping back up

[Guest Taxed]

I don't do too many trusts so please double check my opinion.

Suspended losses can be deducted at the transfer to the bene. Then the bene will gift it to mom (retaining the new basis)

I don't think in this situation the stepped up value rule applies

[SFA]

Hmmm. I've been hoping for some more action on this topic as well.

How has the trust been taxed? Grantor-type trust? Simple? Complex? What are the provisions in the trust instrument that control the rules for distributions to beneficiaries?

How was the property transferred to the trust when it was formed? Was a gitf tax return prepared by the grantor when the irrevocable funding of the trust took place? Have the trust assets been included in the estate?

I don't know by what authority a Trust can make "gifts," of the corpus, instead of "distributions." Big difference in my understanding.

Who is the trustee? More information is needed. Take your time and research fully.

[Guest Taxed]

I believe a member by the name of OldJack and also Mr. Pencil know much more about this topic. Perhaps they will chime in with their opinion.

After this tax season I will take a refresher course on Trusts. It has been a while since i checked up on the Trust rules. So far I have been lucky, had to deal with simple trusts upon death.

[SFA]

Also, the comment that he put his residence into the trust . . . did he then continue to live in it and pay rent to the trust? The plot thickens!

[Mr. Pencil]

I believe a member by the name of OldJack and also Mr. Pencil know much more about this topic. Perhaps they will chime in with their opinion.

Thank you for the compliment, but since I haven't read the trust either I don't know the answers to the excellent questions that others have raised here. The relationship between the grantor (before and after death), the beneficiary, the other relative, the trust, the attorney, and of course the IRS is not clear in the brief original post.

However, as my regular readers know, a lack of facts is no impediment to my opinions. So I would guess, #1, passive losses are transferred with property and remain suspended until a taxable sale; #2, there is no basis step-up; #3,somebody has to report the income but the IRS doesn't much care who.

[kcjenkins]

Same reason I have not responded, not enough info. But when you provide more details, we can be more specific.

[Randall]

Yes, not enough info. I'm always leery of these things. Lawyers get people set up in these things and it sounds so simple, but the client (and lawyer) doesn't consider how things will be reported for tax purposes, especially future events. Many times, the trust document itself doesn't contain enough info.