Sale of an inherited home in a trust

[SmithTrust]

I am working on the sale of a home section of the 1041 form and it does not allow me to complete the section because it uses the date the Trust was initiated in 1993 as the tax year instead of the year the inherited home was sold (2018).

The Trust was created in 1993, my mother past away in 2017, and the Trust was settled and the home was sold in 2018.

Any guidance would be greatly appreciated.

Thank you

[Carl]

Your post is confusing. As I understand it, the trust was created in 1993 and the home was put in the trust at that time. So if the trust sold the home, what is it exactly that was inherited? The trust didn't inherit it, since it was put in the trust well before your mother passed. 

If the property was inherited from the trust by someone after your mom passed then the trust didn't sell it.

[SmithTrust]

This is a first for me and I am a bit confused. My understanding is that as the Trustee I have to complete a tax return for the Trust.  Myself and my brother inherited the home and I, as the trustee, sold the home to settle the distribution requirements.

Ultimately I need to figure out where to report the assets of the trust (the home and a very small bank account were the only assets), and how they were distributed to the IRS. 

[Carl]

This is a first for me and I am a bit confused

Then you need to STOP! IMMEDIATELY! Your confusion is going to be VERY VERY EXPENSIVE!

Now understand I'm not being insultive here in any way. My intent is to help, not to judge. But it's quite apparent to me that you have no idea what you're doing, and probably don't even realize what you have done that very well may not only be wrong, but could possibly not even be legal if you didn't do it right. Heck, even I can figure it out based on the information provided, because you don't even know what information you yourself need, much less what you may need to provide here in order get a "useful" response.

sold the home to settle the distribution requirements.

Selling the house does not even come anywhere close to satisfying any distribution requirements. But it does create a potential tax liability for the sale, depending on whose name was on the deed prior to the closing on the sale.

You need to stop and seek professional help immediately. Doing things wrong as the legally recognized/appointed administrator will cost "YOU PERSONALLY" in the form of fines, late fees, interest on past due tax liabilities and more. All of that adds up fast, and adds up to a very high dollar amount that makes the cost of professional help seem like a pittance in comparison. As the administrator of the estate, mistakes are not paid for by the estate. They are paid by "YOU" out of "YOUR" pocket. So I am urging you for the sake of your own finances, as well as those you may (or may not) inherit from the estate, SEEK PROFESSIONAL HELP IMMEDIATELY!

I don't know what you deadline is for filing the estate return in your case, since the living trust was basically "frozen" as a living trust upon the passing of the person who owned it, but the late filing penalties are STEEP and come out of 'YOUR" pocket. So get professional help and get on this right now.

If you get professional help, then it is perfectly possible for the trust to pay for that help. But if you do this on your own and screw it up, the trust does NOT pay for that. *YOU* pay for it.

[SmithTrust]

I appreciate the direct approach. I have had everything done professionally to this point. I retained an attorney to file all of the required paperwork, obtained an EIN, and am moving to the last piece of the puzzle - the IRS. At this point I agree with you that I will need to hire a tax professional to finalize things. The frustrating part to me at this point is that Turbotax advertises its business software to be capable of completing trust and estate taxes. I chose them as my professional approach to completing the taxes. That seems to be far from the case. A lesson learned and it may make me think twice about using Turbotax in the future.

Thanks for your help!

[Carl]

I know where you're coming from on the TurboTax Business stuff. Particularly when it comes to estates and trusts, moreso than corporations. There are tens of types of estates & trusts, and just as many ways each type can be set up. Combine that with the fact that state laws on estates and trusts vary widely among some states, and it comes down to knowing what you're doing.

Now TurboTax Business can handle many types of estates & trusts. But not all, and not all situations. The varying state laws tend to make the program rather complex since it can't be "tailored" to any one state or any one situation within a state.

One issue is that with a "living trust" (which is what I think you're dealing with) there are situations where if the trust was not set up correctly to begin with, when the owner of that trust dies, then the trust dies with them - meaning it's no longer a living trust. Then, that may or may not necessitate the formation of a "new" trust for the deceased with a completely new EIN and all assets of the deceased and the "new dead" trust being transferred into it.  Then disposition of assets has to be dealt with from the new trust.

Now I've only heard of this particular situation one time in my adult life. That was on a "living trust" originally set up prior to 1985 or so and because of changes in the state law governing such trust, but the time the trust owner died in the 2000's, the only possible way to handle it correctly was for the "living trust" to die and everything be put in a new trust for disposition. Were it me in the position of trustee trying to deal with it, I'm sure to have screwed it up without professional help because I would have never figured out what I needed to do otherwise.

Now-a-days I living trust can be set up so that it can be used for final dispositions. But since the one you're dealing was established back in the 90's, I'd not be willing to risk it on my own.

[geobrick]

SmithTrust, I think you're just using language that could be confusing to experts. I think I understand what you're asking but I'm also likely to use the wrong terms for things (and yes, using the wrong terms can lead to bad advice because of the confusion). 

Selling a home where the deed is in the name of the Trust should be a common situation.

When the Grantor of the Revocable Living Trust dies, the Trust becomes irrevocable and gets a new EIN number. All the assets are then used to cover estate expenses and eventually distributed to the beneficiaries in accordance with the Trust's instructions. If the house is deeded in the Name of the Trust and needs to be sold to accommodate the estate distribution to the beneficiaries, the Trustee will sell the house. The net proceeds are then distributed to the beneficiaries in accordance with the trust.

The gain would be the net amount of the sale less the value of the house on the date of death (finding the estimated value on that day may be difficult).

My question is where in TurboTax business would we enter the sale of a home? There doesn't seem to be a section for this.