Should a house owned by a supplemental needs trust (or special needs trust) (a complex trust) be considered an asset for tax purposes?

[ExcessTurbo]

If yes, does the house-structure get depreciated?  The house is not rented. The beneficiary gets to live in it at no cost to him.
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Upon death of the beneficiary, the house will likely go to his issue free of trust, so if house is an asset how does the trust ‘dispose’ of the asset if it is re-titled in the name of the issue in year of death?  And is their recapture of depreciation?
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Upon death of the beneficiary if there is at that time no issue (if no heir) the house will need to be sold.  If the house is not an asset, does the house instantly become an asset for dealing with the capital gain?

[Critter · Accepted solution]

It is an asset but it is not depreciated since the beneficiary lives in it.  If you are filing a trust INCOME tax return then it will not be listed anywhere on the INCOME tax return. Only any income the trust earns and the expenses it incurs are listed on the form 1041.

[ExcessTurbo]

The beneficiary died.  The house has been sold.  Presumably gain or loss of the house needs to be included in the next return I do.  How do I make the asset appear in the next return?  Thank you.

[Critter-3]

Ok ... the home doesn't have to be listed anywhere as an asset ... the 1041 reports the sale on a Sch D so you will only enter the sale.

[Greenthumbs62]

Which state return , if any, should a trustee file for a special needs trust (SNT) when

• Original third party grantor of SNT is deceased; trust was created in MA
• Trustee notified IRS of new address for SNT EIN - change from MA grantor address to trustee's FL address (FL has no personal income tax)
• SNT sole beneficiary lives in NY ; original grantor was in MA and trustee lives in FL
• SNT owns no tangible property or business in original state (MA) or any state
• SNT income earned no business income - only bank interest and small amount of investment income
• SNT will not officially distribute income to beneficiary - no K-1(s) will be issued
• SNT will pay any federal and state income tax due 
• Goal of grantor of SNT was to minimize beneficiary income to protect beneficiary Medicaid benefits

[RobertB4444]

If the SNT is located in Florida for the entire year and has no income from any sources out of state then it files no state tax return.

If 2021 was the year that the address was changed then the trust will need to file a part year return for Massachusetts. But after this year it won't have to file a state return again as long as it is located in Florida.