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  1. #1
    johnmalork Guest

    Question Selling a house out of a living trust

    What is the name of your state?What is the name of your state?CA
    Question: How best to sell my mother's house out of her living trust.
    My mother died in January 2004 and it is now September (9 months). I am sole heir and executor of her will and successor trustee of her living trust which includes her house which is free and clear.
    I have to decide two questions:
    1. What is best for me taxwise: To sell the house out of the trust, do the fiduciary return, pass any loss on to me. Or, transfer the house to me and sell it myself. What considerations should I take into account? Is capital gains different in either case?

    2. The house has gone up in value from $270,000 on date of death (appraisal), to $325,000 as of July (realtor's estimate.) My lawyer and tax accountant and this site disagree on whether or not I can use the 'alternate valuation method' (AVM) in this case regardless of whether the estate or I sell it. Obviously, I am better off using the AVM for the July value as my gain at sale is minimized.
    One argument says I can only use the AVM if my asset itself decreases in value. The other says I can only use the AVM if it is a tax advantage for me (seems true if my capital gains is reduced). The third says that it is my choice regardless; I must just apply the method to all aspects of the estate.
    The accountant says if I sell it, I can just state that the property was worth $325,000 and do not have to show any further information.
  2. #2
    taxlady@pacbell Guest

    Property in Living Trust

    Quote Originally Posted by johnmalork
    What is the name of your state?What is the name of your state?CA
    Question: How best to sell my mother's house out of her living trust.
    My mother died in January 2004 and it is now September (9 months). I am sole heir and executor of her will and successor trustee of her living trust which includes her house which is free and clear.
    I have to decide two questions:
    1. What is best for me taxwise: To sell the house out of the trust, do the fiduciary return, pass any loss on to me. Or, transfer the house to me and sell it myself. What considerations should I take into account? Is capital gains different in either case?

    2. The house has gone up in value from $270,000 on date of death (appraisal), to $325,000 as of July (realtor's estimate.) My lawyer and tax accountant and this site disagree on whether or not I can use the 'alternate valuation method' (AVM) in this case regardless of whether the estate or I sell it. Obviously, I am better off using the AVM for the July value as my gain at sale is minimized.
    One argument says I can only use the AVM if my asset itself decreases in value. The other says I can only use the AVM if it is a tax advantage for me (seems true if my capital gains is reduced). The third says that it is my choice regardless; I must just apply the method to all aspects of the estate.
    The accountant says if I sell it, I can just state that the property was worth $325,000 and do not have to show any further information.
    All is substantiated on the form 706 filings and inventory appraisals. The AVM is used for a reduction in value for estate tax purposes on the 706 filing. So since it has appreciated ( you might not be filing the 706) I would say you could not use the AVM. You would use the date of death value. If you choose to sell the property thru the Trust, then the Trust could pay the taxes, or pass through to you. Probably not much advantage either way. You mention a loss, but you state it has increased in value I would say your basis in the property to calculate capital gains is $270,000 date of death value.
  3. #3
    abezon is offline Senior Member
    Join Date
    Aug 2002
    Location
    Washington
    Posts
    3,484
    1. Your biggest consideration is what the trust says to do. If the trust instructs the trustee to transfer the house to the beneficiary, you need to put on your trustee hat & deed the house to the beneficiary, then put on your beneficiary hat & sell the place. If the trustee has the option, you should consider that the trust can write off various expenses such as tax prep fees, court fees, the costs of changing title from the trust to your name, etc.

    2. AVM is available if & only if the AVM date results in a lower gross estate & lower *estate tax* liability. Whether it helps your personal taxes is irrelevant. AVM is available even if some assets go up in value, as long as the total assets go down in value. The 3 "arguments" you listed are incorrect understandings of the AVM rule.

    You can declare the house was worth whatever you want when you sell it. But if you get audited, you'll have to convince the IRS it was worth $325k then, & hope the auditor doesn't ask about the appraisal. You'll have to judge the likelihood of an audit & whether you can successfully show the house was worth $325k at your mother's death.

    FYI: if you're filing an estate tax return, you have untiil 9 months from your mother's death to do so. (You can file an extension if necessary.) Whatever value you put on the estate tax return is the value you'll have to use as your basis for sale.
    This post does not constitute legal advice, nor does it create an attorney-client relationship. Postings are based only on the information provided and you should consult an attorney in your area before relying on information contained in this post.

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