Loss on sale of inherited house

[jlew1229]

Clients Mother put her house in a Revocable trust in 2004, and retained a life estate.  She passed away in 2020, and the house was sold a couple months later.     The 1099-S has my clients SSN as the Tax id number on the 1099-s, but the name attached to the 1099 -s is the name of the trust.   

I am being told by my clients lawyer that my client was the sole settlor, sole trustee and sole beneficiary of the trust. 

My question is can she take a loss on the sale of the house?  The FMV at time of death and sale price are the same.   The loss occurs when I include the closing costs.  

The home was not used personally by the family between the date of death and the sale date.   

Thank you in advance for your help. 

[TaxGuyBill]

---

@jlew1229 wrote:

The 1099-S has my clients SSN as the Tax id number on the 1099-s, but the name attached to the 1099 -s is the name of the trust.   

My question is can she take a loss on the sale of the house?  The FMV at time of death and sale price are the same.   The loss occurs when I include the closing costs.  

The TRUST can take the loss, which will pass on to your client. 

The 1099-S should have the EIN of the Trust, not the SSN of your client.  You may need to report it, then 'back it out' to net zero, then report the loss from the Trust K-1.

[BobKamman]

Sounds like your client will sign anything put in front of her, so write a check to yourself for $50,000 on her checking account, have her sign it and take the next couple months off.  

She was the settlor of the trust?  So this wasn't Mom's revocable trust.  Mom told her "sign here" and now she's a settlor (grantor), trustee and beneficiary of her very own trust.  Gets it out of Mom's name so Mom can qualify for taxpayer-financed welfare.

Then her trust discovers it owns a house in 2020.  The people at the escrow company (or the lawyer) ask for her SSN and she obliges them.  They ask her to sign a sales contract and escrow instructions and a deed, and she complies.  Who cashed the check?  Was there ever a bank account for her trust?

Why would the daughter get stepped-up basis, if the mother gave away the property 16 years ago?

[joshuabarksatlcs]

No comment on the $50K check suggestion...

The facts given weren't 100% clear, but with the "life estate retention" and the attorney's opinion that the Daughter is the "sole settlor", it could just be that the Mother had transferred the property to the Daughter's, and the property was held under the Daughter's Revocable Trust.  

If so, upon the Mother's death, the life estate terminated and Daughter continued to be the owner of the house, with the title under her (the Daughter's) Revocable Trust.

If the above were the facts, I would agree - NO stepped up basis. 

Further, the daughter may even have a capital gain because her basis (assumed fact: the transfer was a gift from the mother) could very well be the lower of the FMV at the transfer or the Mother's basis.  Check the basis rules for gifts.   

Regardless, it's time for my daily bourbon regimen.  And I digress.

[BobKamman]

Bourbon?  Guess that's OK if you don't have Scotch whisky available.  There is Section 2036, which might allow stepped-up basis after all (but check the paperwork).  

[jlew1229]

I am not sure if this will help clear things up, but I pulled the property card from the town hall, the town has the property in the name of the daughter back in 1996.   But the HUD and 1099-s are in the name of the Trust.  

They sent over a quitclaim deed from 1996 where the Mom, for consideration paid, grants the daughter the property, " with Quitclaim covenants. and retained a life estate.  

Somehow it went into a trust in 2004 with the Mom still retaining a life estate.   I am being told that this is a nominee trust.  

The lawyer sent over a warranty deed created at the closing in 2020 , that also  releases the life estate.   This warranty deed also has this verbiage included. 

"Meaning and intending to describe and convey the same premises conveyed to " Daughter's name " , Trustee of the Trust by virtue of a deed dated 8/27/2004 .  This is not the homestead property of the within grantor.   "

Does this mean the  mother gifted the property to the daughter back in 1996 and then I guess the daughter put it into a Trust in 2004?   Mom retained a life estate during all of this.  So the daughter does not receive title until the Mom passes away?    

Per Section 2036(a), the value of the home the daughter inherited should have been included in the mom's gross estate?   So the property get a stepped up basis when Mom passes away in 2020.?    According to the lawyers, it should have a stepped up basis, but I'm not taking that as gospel.     

[BobKamman]

" I am being told that this is a nominee trust."

Has anyone provided a copy of the trust?  I would not rely on blind faith to figure out what really happened.  Is this in New York?  Small-town lawyers there enjoy doing things with life estates and remainder interests, that you don't find in other parts of the country. 

Daughter, or her trust, always had title to a remainder interest. When mother died, the trust acquired the whole thing.  If mother continued to live there, it's probably covered by Section 2036, so would be included in her estate, so gets stepped-up basis.  But it might depend on what's in daughter's trust.   

[qbteachmt]

"According to the lawyers, it should have a stepped up basis, but I'm not taking that as gospel."

Would this be the same lawyers that took the Daughter's house from 1996 and put it into the Mother's trust in 2004? That seems to be what is reflected in the legal documentation.

"Does this mean the mother gifted the property to the daughter back in 1996"

You stated: "a quitclaim deed from 1996 where the Mom, for consideration paid, grants the daughter the property,"

"and then I guess the daughter put it into a Trust in 2004?"

You stated: "Clients Mother put her house in a Revocable trust in 2004"

Whose trust is this? Not who is the nominee or the beneficiary.

[jlew1229]

I have just requested a copy of the trust documents again.  my apologies.   I have not received it yet.   I should have had  this in the beginning, now that I see the replies.    

Your comment says, "depends on what is in the trust".    What kind of stipulation or provisions in the trust should I be looking for.   

[BobKamman]

Quitclaim deeds often recite consideration, because someone in 16th Century England thought they should.  "Love and affection" counts.  

[qbteachmt]

"What kind of stipulation or provisions in the trust should I be looking for."

What you seem to be determining is if the Trust files the info on the house sale, or the daughter, and in either scenario, the 1099-S is incorrect:

"The 1099-S has my clients SSN as the Tax id number on the 1099-s, but the name attached to the 1099 -s is the name of the trust."

And to resolve that, you need to know who owned the property after death. I'd make one of these lawyers straighten it out with the title company, because someone made an error along the way, either in execution or in guidance.

[jlew1229]

I forgot to Thank everyone for your help.    Thank you all very much!!