Selling a house held in revocable trust after death

[Muchfaith]

Is it better for the trust to sell the home or the beneficiaries to sell the home?

[Anonymous_ · Accepted solution]

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@Muchfaith wrote:

Is it better for the trust to sell the home or the beneficiaries to sell the home?

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That would depend upon several factors, but the trust could sell the home and then distribute the proceeds to the beneficiaries provided the trustee has been given the authority to do so in the trust instrument (which is highly likely - occasionally, however, the grantor's desire was to have the property go directly to the named beneficiary(ies) and any language to that effect will be found in the trust instrument).

You might want to seek an in-person consultation with a tax and/or legal professional for advice and guidance on this matter.

[Carl]

For starters, unless I'm missing something (and I very well may be) a revocable trust instantly becomes irrevocable upon death.

Is it better for the trust to sell the home or the beneficiaries to sell the home?

The only useful answer that anyone can really provide here is, "it depends". If the trust will have an overall AGI that is higher than that of the benificiary recipient after the sale, thus putting the trust in a higher tax bracket if the trust sold it, then it "might" be more beneficial tax-wise to go ahead and distribute it to the benificiary recipient and let them sell it.  This can be difficult, because a trust is taxed differently than in individual is, and it usually results in the trust paying more in taxes than the individual would if the individual sold it after inheritance.

But if the trust taxable income is say, $100,000 after the sale and the individual taxable income is $300,000 after the sale, it might be more benificial for the trust to sell it.  Then if the state also taxes that income you have to figure that in too. Remember, a trust does not get a "standard deduction" either. See the trust/estate tax rates/brackets for 2019 and 2018 at https://www.irstaxapp.com/2019-tax-bracket-for-estate-trust/

Personal tax brackets are at https://nationaltaxreports.com/see-the-irs-tax-brackets/

[Anonymous_ · Accepted solution]

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@Carl wrote:

...."might" be more beneficial tax-wise to go ahead and distribute it to the benificiary recipient and let them sell it.  This can be difficult, because a trust is taxed differently than in individual is, and it usually results in the trust paying more in taxes than the individual would if the individual sold it after inheritance.

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Actually, it does not make one bit of difference whether the trust sells the property and distributes net gain or distributes the property in-kind and the beneficiary sells the property; the beneficiary will be liable for any tax due regardless. The only scenario where the trust would be liable for tax due on net gain would be if the trust did not distribute the gain to the beneficiary.

[stcpa]

Does the grantors residence in the revocable trust get step-up basis when he dies?

[Anonymous_]

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@stcpa wrote:

Does the grantors residence in the revocable trust get step-up basis when he dies?

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Typically, the residence owned by the grantor in a grantor trust will receive a basis stepped-up to its fair market value as of the date of death.