Discussion:Trust owns residence - exclusion available?
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Discussion Forum Index --> Advanced Tax Questions --> Trust owns residence - exclusion available?
Discussion Forum Index --> Tax Questions --> Trust owns residence - exclusion available?
| 7 February 2008 | |
| Mother died and left all assets in trust to son and daughter equally. The trust owns the residence. The residence is being lived in by step-father for his lifetime. How can the exclusion of gain rules be met in this situation. Step-father meets the residence requirement, yet does not have any ownership interest. Does teh residence have to be sold within 2 years of mother's death in order to exclude gain? | |
| 7 February 2008 | |
| No exclusion available unless stepfather shares in the proceeds. | |
RoyDaleOne (talk|edits) said: | 7 February 2008 |
| Look to what the basic is in the residence to the children. | |
| 7 February 2008 | |
| Right, of course they get a step up in basis to FMV at date of death. It just seems that the way this Georgia trust was setup, the opportunity for exclusion has been lost! Ouch! This stepfather sharing in the proceeds may be some fertile ground. I'll keep that on the back burner. Thanks all. The son and daughter were actually surprised they got this inheritance. The mother was wanting to structure everything so a former daughter in law could never get anything. Everything has its price!
More later. | |
RoyDaleOne (talk|edits) said: | 8 February 2008 |
| Living life tenant by step-father maybe FMV at his death.. Not sure.
Basis to FMV maybe no gain. | |
| 8 February 2008 | |
| I believe that the Service issued a PLR wherein a Sec. 121 exclusion was allowed on a portion of a residence held in a Sec. 678 grantor trust, based on the actuarial value of the beneficiary’s interest. | |
| 8 February 2008 | |
| Life tenancy by step-father leading to FMV at his death would sure solve alot of problems. I'll check in to that and the actuarial value. Thanks all. | |
| 8 February 2008 | |
| As described, the life tenancy is neither self created nor vested with power of appointment. No step up on death. The §121 exclusion only applies to those who reside and own. You don't get money, you don't recognize gain.♫ | |
RoyDaleOne (talk|edits) said: | 8 February 2008 |
| The 121 exclusion also applies to:
(11) Property acquired from a decedent.--The exclusion under this section shall apply to property sold by--
(A) the estate of a decedent,
(B) any individual who acquired such property from
the decedent (within the meaning of section 1022), and
(C) a trust which, immediately before the death of
the decedent, was a qualified revocable trust (as
defined in section 645(b)(1)) established by the
decedent, determined by taking into account the ownership
and use by the decedent.
| |
| 8 February 2008 | |
| §121(d)(11) applies to situations where gain is determined by decedent's basis, typically a sale in progress as at date of death where the actions of the executor/heir are ministerial. | |
RoyDaleOne (talk|edits) said: | 8 February 2008 |
| I naturally assumed the trust was a grantor trust created prior to death, and not having the residence as the only asset. And the trust sells the residence.
In as much as property for sale under a binding contract at the time of death it may or may not to eligible for setup basis. That is the gain could be IRD. Also, does not the reminderman get the basis determined at the time of the death of the life-tenant and not at the time at the time of the death of the grantor. | |
| 8 February 2008 | |
| Not even close. This is a fairly typical situation in which decedent wishes to provide for second husband but not to the disadvantage of her children. For there to be a step up on death of stepfather the devise has to be at least the equivalent of a life estate under applicable state law and includable in his estate. (Note that GA is in the 11th Circuit) For there to be a §121 exclusion the stepfather would have to be in a situation in which he was recognizing gain on sale. | |
MARYLANDTAX (talk|edits) said: | 1 March 2008 |
| Dennis: Just a slight twist on the facts; suppose the residence in question was originally placed in an irrevocable trust (probably to avoid Medicaid rules). Do you see any step up in basis upon death of mom. The trust paid nothing
for the property upon aquisition 20 years ago. In looking at the substance v. form of the transaction wasn't this really just a gift. Thanks in advance for any thoughts you may have ! | |
| 1 March 2008 | |
| It all depends on how the trust was written and how the transfer was effected. Again, the basic rule is stepup comes with inclusion. | |
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