Decedent's estate or complex trust?

[Catherine]

Have a decedent's estate on a 1041(everything was in a revocable trust that became irrevocable as of DOD). All cash/securities assets passed to heirs by terms of trust. What's left is a rented out house and some pasture land out west.

Problem is, it's an area where property is just not selling. Trustee has renters for the farmland and the house and since they couldn't sell quickly (had it listed and there was not even one nibble), they're now hoping to keep renting and hold on until such time as it will sell for enough money to pay the realtor's fee and the lawyers for the paperwork.

So is this still a decedent's estate? Has it morphed into a complex trust (not paying out rental income for complicated family reasons - and I've seen the trust doc's; payout is _not_ required)? Are we going to start getting letters asking why this estate hasn't been closed out? (This is only the 2nd year; DOD was 10/09.)

TIA,

Catherine

[Bees Knees]

It is still a decedent’s estate until all estate assets have been distributed to the heirs.

If the heirs all have an equal share of the remaining estate assets, one thing that could be done is have the estate distribute the property to the heirs by transferring title into their names. That allows you to close the estate. The heirs now own the property as joint tenants with right of survivorship.

Since it is investment property and not a trade or business, the heirs don’t even have to file a partnership tax return for the rental activity. Simply split up income and expenses between each heir and have each report his/her share of the rental activity on their personal returns. Once the property is sold, each pays tax on his/her share of the gain.

[Catherine]

It is still a decedent's estate until all estate assets have been distributed to the heirs.

That's pretty much what I figured, but wanted a confirmation.

If the heirs all have an equal share of the remaining estate assets, one thing that could be done is have the estate distribute the property to the heirs by transferring title into their names. That allows you to close the estate. The heirs now own the property as joint tenants with right of survivorship.

Since it is investment property and not a trade or business, the heirs don't even have to file a partnership tax return for the rental activity. Simply split up income and expenses between each heir and have each report his/her share of the rental activity on their personal returns. Once the property is sold, each pays tax on his/her share of the gain.

That's not going to happen for complicated family reasons that I don't understand very well. But I will suggest it to the client (again).

Thanks,

Catherine

[Linda Mathey]

Did you file Form 8855 to combine the estate and trust filing until the estate is closed? Was the property in the name of the trust? If not was the will a "pourover will" that directed that any assets outside the trust become assets of the trust? If yes and everything else has been distributed (and this is the only asset remaining) then close the estate file a final return and file an intial return for the trust. This is how I would handle it until the heirs get their act together.

[Catherine]

Did you file Form 8855 to combine the estate and trust filing until the estate is closed? Was the property in the name of the trust? If not was the will a "pourover will" that directed that any assets outside the trust become assets of the trust? If yes and everything else has been distributed (and this is the only asset remaining) then close the estate file a final return and file an initial return for the trust. This is how I would handle it until the heirs get their act together.

Everything was titled in a revocable trust that became irrevocable on the death of the grantor. Everything that (by the terms of the trust) was supposed to pass to the heirs, except the real property, has been transferred.

Will look into the 8855 - thanks!