Reverse mortgage interest and a trust

[mmbowm]

My cousin setup a reverse mortgage in early 2024 on my Aunt's home and received a lump sum payment in the amount of $275,000 dollars to fund her dementia care.  These funds were deposited into a high yield savings account.   She passed away in July of 2024.  Her house which she solely owned is now the lone asset held by her trust.  The house was occupied by my cousin and is now listed for sale so family members (beneficiaries in the trust) advanced the funds to pay back the mortgage/Interest in December.

  Questions:

  1.   A 1099 was issued by the bank for interest earned in her SS #.   Should I transfer the income received after       her death and report via the trust?

   2.  Is the interest and fees paid in December fully deductible by the trust?

   3.  The cousin who remained in the house assumed all bills and was responsible for the cleanout and  preparing the home for sale.  Is there any impact on the trust accounting for this?

    4.  Do we need to do a calendar year end return for the trust, or can we do just one final return after the house is sold (providing that its less than one year since her death) ? 

Thanks!

[DianeW777 · Accepted solution]

Answers are noted beside each of your questions.

Questions:

  1.   A 1099 was issued by the bank for interest earned in her SS #.   Should I transfer the income received after  her death and report via the trust?

• Yes. Any interest after death will be reported on the beneficiary(ies) return via the trust return K1s. See how to nominee below.

   2.  Is the interest and fees paid in December fully deductible by the trust?

• Yes, see the allowable deductions in the Form 1041 Instructions

   3.  The cousin who remained in the house assumed all bills and was responsible for the cleanout and  preparing the home for sale.  Is there any impact on the trust accounting for this? 

• It depends.  If the trust pays for any services then they could take the deduction, otherwise there is nothing to report.

    4.  Do we need to do a calendar year end return for the trust, or can we do just one final return after the house is sold (providing that its less than one year since her death) ? 

• Filing requirements for the trust return is gross income of $600.  If there was no income in 2024, the return is not required.

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

• Gross income for the tax year of $600 or more;
• A beneficiary who is a nonresident alien; or
• If you held a qualified investment in a QOF at any time during the year, you must file your return with Form 8997 attached. 
  • See the Form 8997 instructions.

[mmbowm]

Thank you so much for the expert advice.