Mom's Trust Rental Income After Her Death

[allanb]

California, Good morning. My Mom passed away on 2-18-2022 (96 years old). My sister was the Trustee of all her affairs. I was a Realtor at the time and we sold both residential real estate properties she had. One closed on 6-1-2022 and the other closed on 6-15-2022. The Trust was and still is in effect. 95% of the monetary assets have been distributed to my Sister and me, we were the only beneficiaries. We left $25k in the trust bank account to cover 2022 Federal income taxes-State income taxes and County Supplemental Tax Bill through the closing date of each property The question: is the income from the properties from the date my Mom died to the date that the properties closed Escrow considered part of her Estate and her Estate would pay the State, Federal Taxes on her final tax return or are my Sister and I responsible individually to pay 50/50 on our Income tax forms as rental income for that period or is that income, even though after her death considered part of our inheritance and not subject to any taxes as my Mom's total estate was under $4.5 million dollars? My Sister did pay the Supplemental County Property Taxes from my Mom's trust account, was that a mistake?

Thanks for any insight, Al

 

[Zigner]

The trust owned the house and is responsible for the taxes.

EDIT: Or the estate, depending on how they were titled.

 

[Taxing Matters]

The trust owned the house and is responsible for the taxes.

EDIT: Or the estate, depending on how they were titled.

Not exactly right. If the house was owned by the trust then the trust would need to file a Form 1041 for the income. If the estate owned the house (which would be the case if it was not transferred to the trust and was still titled in the decedent's name) a Form 1041 would also be filed. But under the facts given, we lack one piece of information to know who will ultimately pay the tax on that sale for the 2022 tax year.

And that information is the date(s) and amounts of the asset distributions. The OP stated that nearly 95% of the entire amount her mothers trust/estate had has been distributed. If that was done before the end of the tax year, then the taxable gain from the sale of the home passes through to the two beneficiaries who received the distributions. They would then report those distributions on their income tax returns and they'd be the ones to pay the tax. In most cases, this works out to save the most tax as oppposed to having the trust/estate keep the funds and pay tax on the sale as the estate/trust tax rate schedules are more progressive, resulting in more tax being paid.

It may be a good idea to have a tax pro familiar with the Form 1041 do that piece of it at least, since it different enough from the Form 1040 that individuals use that it's easy for someone who has never done one to make errors on it. Then once that's done, the beneficiaries will have the schedules K-1 they need to use to report their share of trust & estate income. Then doing the 1040 wouldn't be all that much different if the instructions on the K-1 are followed. Or use a program like Turbo Tax, which will know where those numbers go on the return.

 

[zddoodah]

My sister was the Trustee of all her affairs.

As phrased, this doesn't make sense. One can be the trustee of a trust, but I have no idea what it might mean to be trustee of an affair.

I assume your mother had a trust, but you've told us nothing about that trust or what assets it may own or have owned. That's going to hamper anyone's ability to provide solid information in response.

The Trust was and still is in effect. . . . [W]e were the only beneficiaries.

Your use of the past tense in the second sentence is VERY curious. Was it intentional? If so, who are the beneficiaries now?

95% of the monetary assets have been distributed to my Sister and me

What about non-monetary assets?

The question: is the income from the properties from the date my Mom died to the date that the properties closed Escrow considered part of her Estate and her Estate would pay the State, Federal Taxes on her final tax return or are my Sister and I responsible individually to pay 50/50 on our Income tax forms as rental income for that period or is that income, even though after her death considered part of our inheritance and not subject to any taxes as my Mom's total estate was under $4.5 million dollars?

You haven't provided sufficient information to permit an answer. However, I'm guessing that your sister, in her capacity as trustee of your mother's trust, failed to retain the services of an attorney to advise her in the administration of the trust and, as a result, may have screwed some things up. If I'm right about that, she would be well-advised to retain an attorney's services ASAP (along with the services of a CPA familiar with these issues). My GUESS is that the income in question is income of the trust, but that's just a guess.

 

[LdiJ]

California, Good morning. My Mom passed away on 2-18-2022 (96 years old). My sister was the Trustee of all her affairs. I was a Realtor at the time and we sold both residential real estate properties she had. One closed on 6-1-2022 and the other closed on 6-15-2022. The Trust was and still is in effect. 95% of the monetary assets have been distributed to my Sister and me, we were the only beneficiaries. We left $25k in the trust bank account to cover 2022 Federal income taxes-State income taxes and County Supplemental Tax Bill through the closing date of each property The question: is the income from the properties from the date my Mom died to the date that the properties closed Escrow considered part of her Estate and her Estate would pay the State, Federal Taxes on her final tax return or are my Sister and I responsible individually to pay 50/50 on our Income tax forms as rental income for that period or is that income, even though after her death considered part of our inheritance and not subject to any taxes as my Mom's total estate was under $4.5 million dollars? My Sister did pay the Supplemental County Property Taxes from my Mom's trust account, was that a mistake?

Thanks for any insight, Al

If the properties were in a trust, and that trust was either irrevocable or became irrevocable as of her death, then the trust would have been responsible to file a tax return and to pay any tax calculated on the income earned by the properties (and any other income attributable to the trust) unless that income was passed to you and your sister via a Schedule K1. The trust is a separate legal entity required to file it's own tax return.

It would not be part of your mother's final tax return nor would it be reported on your personal tax returns unless the trust passed the income on to you and your sister via a Schedule K1.

 

[davew9128]

It never ceases to amaze me that people do things like this and never once stop to get tax advice. $25k left in the bank to pay "taxes" (which I suspect will be $0) and nothing spent for professional tax advice.

 

[allanb]

Thanks for all of the advice, I am going to tell my Sister that she should talk to a tax attorney and have the final return done by a reputable person familiar with this type of situation. Just as a follow-up. What I meant by all of her affairs, I meant all of my Mom's decisions about everything were being carried out by my sister, financial, health, etc. My Mom had dementia. To davew9128, before I do anything that requires action on things I don't know about (legally), I come here because the advice I get here helps me know who I should be consulting with before I start doing that and I believe that is why this forum exists for the most part. The other thing is, my Mom, made my Sister the Trustee, but guess who she comes to when she doesn't know what she is doing...me, and I rarely know what I am doing. And, my sister is the biggest cheapskate in the world. All of the assets of the trust were 2 residential properties and 3 bank accounts with money in them. My mom did not keep possessions around, probably best. Anyway, obviously, it's more complicated than I thought so I will follow all of the suggestions, thank you so much for them and the time you spent responding!

 

[LdiJ]

Thanks for all of the advice, I am going to tell my Sister that she should talk to a tax attorney and have the final return done by a reputable person familiar with this type of situation. Just as a follow-up. What I meant by all of her affairs, I meant all of my Mom's decisions about everything were being carried out by my sister, financial, health, etc. My Mom had dementia. To davew9128, before I do anything that requires action on things I don't know about (legally), I come here because the advice I get here helps me know who I should be consulting with before I start doing that and I believe that is why this forum exists for the most part. The other thing is, my Mom, made my Sister the Trustee, but guess who she comes to when she doesn't know what she is doing...me, and I rarely know what I am doing. And, my sister is the biggest cheapskate in the world. All of the assets of the trust were 2 residential properties and 3 bank accounts with money in them. My mom did not keep possessions around, probably best. Anyway, obviously, it's more complicated than I thought so I will follow all of the suggestions, thank you so much for them and the time you spent responding!

It doesn't have to be a tax attorney. It can be, but it doesn't have to be. An Enrolled Agent or other tax professional who is well versed/has expertise in estates and trusts can handle these matters for your sister and since she is a "cheapskate" would certainly cost less than a tax attorney.

 

[Taxing Matters]

It doesn't have to be a tax attorney. It can be, but it doesn't have to be. An Enrolled Agent or other tax professional who is well versed/has expertise in estates and trusts can handle these matters for your sister and since she is a "cheapskate" would certainly cost less than a tax attorney.

Indeed, if the OP came to me for advice on this one, I'd refer the OP to a CPA or enrolled agent to do it. I rarely prepare original returns for individuals because they can get that done elsewhere for less than what I charge per hour.