My Mom passed away in April 2020. We sold her condo which was in a grantor trust and a cabin which was in another grantor trust. Both were sold within six months of her death so selling price was approx same as FMV on date of her death. Both trusts received a 1099-S reporting the sale proceeds so tax returns will need to be filed for those trusts. Myself and my siblings were the beneficiaries of both trusts. So we should get the step up in basis and have zero or very small gains to report on the sale of both assets--is this correct? How do I report this on the trust returns? My understanding is the trusts were grantor trusts which do not require any entries on the tax return but do require attachments with explanation. Would the attachment include the explanation of facts and names, SSNs of beneficiaries? Then each beneficiary reports their portion of the sale of each asset and the resulting gain, if any, on their tax return? I have some tax experience but have never had to deal with anything like this before. I don't want my siblings to be mad at me if its not done correctly!
Do you already have EINs for the trusts? Grantor trusts generally become irrevocable and their own separate entities upon the deaths of their grantors.
A Form 1041 should be prepared and filed for each trust in order to report the transactions, but no attachments need to be filed with explanations.
You can list all of the beneficiaries in the course of preparing the Form 1041 and each will receive a K-1 for their share of the proceeds.
If you have absolutely no experience in trust accounting or tax preparation (and your siblings have a tendency to be vindictive - no offense), you will be infinitely better off seeking professional tax guidance and, perhaps, return preparation.
Technically, the trust receives the step-up in basis on the date of death because it is then a "completed gift".
If these were both personal use properties, then a loss on the sale will not be deductible
Since the trusts received the 1099-S Forms, then I am assuming the trusts sold the properties, so the sales will have to show on each trust return because IRS will expect to see the 1099-S reported on each return.
Each trust return will show a Sch D sale of a capital asset, acquisition date INHERIT, adjusted basis is the fmv on date of death + closing costs for sales expenses only + any required improvements required for sale. Selling price is self-explanatory, as well as it is a long term holding period.
Then, at some time, the executor of each of the trusts will begin distributing cash and assets out of the trusts to the beneficiaries and they will receive k-1s with their "taxable" portions on them for tax purposes
Technically, the assets receive a stepped up basis because they were acquired from a decedent (the nongrantor trust acquires the assets from the grantor trust, the latter of which is indistinguishable from the decedent).
See IRC §1014(b)
Trusts have trustees, not executors, and the beneficiaries may never receive a K-1 depending upon how the trust, itself, was drafted.
Yes, the trusts sold the properties. Thank you for your explanation on how to show the stepped up basis and sale of the properties by the trusts. This takes the mystery out of how to report the transactions on the trust returns and then flow them through to the 1040s.