Distributing Assets of a trust after death of grantors.

[successortruste]

What is the name of your state (only U.S. law)? Virginia
This is a Wills and Trusts question as well as a Real Estate question. My parents created a revocable living trust which held title to all of their assets and I was designated successor trustee. My mother died in 2012, my father in April, 2015. The trust assets have been liquidated and proceeds distributed to the beneficiaries (6 children) other than an undivided half interest in one piece of property located in Virginia. The property is technically a rental since there is a tenant living in a house on the property, but its value is as vacant land. As rental property, it generates a passive loss every year for the owners. It has been suggested that we could leave it in the trust until it sells (who knows when?) but the yearly losses would not do us any good. Another idea is to form an LLC and transfer ownership of the property into it. I don't know if this can be a direct transfer or whether I am required to first transfer the property to the beneficiaries and then to the LLC. We are trying to locate a trustworthy lawyer but just looking for advice in the meantime.
Thanks

 

[LdiJ]

What is the name of your state (only U.S. law)? Virginia
This is a Wills and Trusts question as well as a Real Estate question. My parents created a revocable living trust which held title to all of their assets and I was designated successor trustee. My mother died in 2012, my father in April, 2015. The trust assets have been liquidated and proceeds distributed to the beneficiaries (6 children) other than an undivided half interest in one piece of property located in Virginia. The property is technically a rental since there is a tenant living in a house on the property, but its value is as vacant land. As rental property, it generates a passive loss every year for the owners. It has been suggested that we could leave it in the trust until it sells (who knows when?) but the yearly losses would not do us any good. Another idea is to form an LLC and transfer ownership of the property into it. I don't know if this can be a direct transfer or whether I am required to first transfer the property to the beneficiaries and then to the LLC. We are trying to locate a trustworthy lawyer but just looking for advice in the meantime.
Thanks

How much passive loss does the property generate annually?

 

[successortruste]

Usually around $5,000, though it was $13,000 one year.

 

[successortruste]

I should add a bit more information. My father was able to deduct the losses under the special rule for rental activities allowing up to a $25,000 passive loss with certain income limits. Not sure that this is available to a trust. I guess I probably need to ask these questions in a tax forum.

 

[justalayman]

If that is the only asset in the trust, how is the trust paying the debt?

 

[LdiJ]

I should add a bit more information. My father was able to deduct the losses under the special rule for rental activities allowing up to a $25,000 passive loss with certain income limits. Not sure that this is available to a trust. I guess I probably need to ask these questions in a tax forum.

The trust could elect to pass the income/losses through to the beneficiaries via a Schedule K-1. That would solve the problem. See a local tax professional for more information.

 

[successortruste]

What I should have said is that all of the other assets have been liquidated and much of the cash distributed. There is cash left of which enough will be retained either in the trust or in whatever vehicle of ownership there is going forward to cover the expenses. We will definitely be hiring a tax professional to sort this out.
Thanks