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My two brother and I are to split the assets of my dad's estate equally, but, as Trustee, it's up to me to figure it out. I'm doing ok, except for one thing. Dad sold his house in 2015 via Land Contract (rather like owner finance, but the home remains in the Trust's name till the note is paid off in around 3.9 years (balloon payment). How do I treat the monthly house payment made by the buyer till the balloon payment comes due is my question? Anyone know?

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The Minument of Title will Probate Dad's will, which said anything not in the trust is to be swept into the Trust by the Co-Trustee, meaning what's in the bank in Texas will then be available for me to ask for a transfer from that bank's account into the Trust Account at the Ohio bank. Also dad's car will go into the trust so that I can sign it over to my sister in law and brother per dad's request. I'm hoping this is how it's going to all work out, anyway... And hopefully HnR block will know how to deal with the rents from the land contract.. Brother...what a job this all is... I'm glad I've got all of you to bounce it all off of for sure!
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FF...so glad to know I'm not the only one who's has something like this happeing. I appreciate your insite into the matter. GA....thanks too, for all the advice, and yes, my dad was very considerate. He was a pretty nice guy even though his old age did tend to make him a more then a bit cranky and unreasonable at times. He would get so frustrated, knowing that nothing he did was going to get him back to his "previous" happy life once he became sick enough that he could no longer live alone. Can't blame him for that....or anyone for that matter. You guys have all given wonderful advice when it came to dealing with the various problems we encountered along the way with him. I'll never be able to thank you all for that.

Igloo, I will be visiting Ohio in two weeks to spend a week with my best friend from high school. I will visit the buyers and let them know that dad has passes away and that they need to continue just as they have been, only they will need to add a bit to the monthly payment as what they are paying is not enough to completely covering the property taxes. The tax rate went up last year but dad just let the increase slide. I think, as trustee, I need to make them aware of the adjustment as the taxes will be coming out of the trust.

There is money in a bank account in Texas that was not in the trust. There we ad to get a lawyer and are doing a minument of title for probate.

Since the house is in Ohio, which is the same state as the trust is in, I don't think there will be a state to state problem with the trust. The only thing in the trust now is the home and all that will be coming into the trust will be the payments and anything I put into it as Co-Trustee.

There is enough money in the Texas account to cover the taxes and expenses it's going to cost to get the taxes done. I plan on holding out what I feel will be needed for trust expenses once that bank account is available to me before dispersing the rest, which I will then deposit into the Trust. I'll pad it a bit, knowing that once all the income taxes and such are taken care of I can then disperse it to my brothers and myself.

I will probably first talk to Dad's HnR block people since he sold the house last year so they had to deal with the sale of the house on the taxes somehow.... and go from there... If I don't feel them competent, then I'll talk to our Texas Lawyer who's doing minament of title and get his recommendations...
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GardenArtist, yes my parents house was sold.... the loan I had mentioned was on my own house, to which my parents were the "bankers" so my mortgage payment went to them. So after Probate I will become the "banker" to my own loan, thus I would need to pay myself.

Life gets so complicated after the fact.
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Guest - totally beyond sticky. I wouldn't be surprised if D ends up needing legal & CPA both for Ohio & Texas. For TX, the "foreign" will aspect (for those things that d's dad didn't include in the trust) could require filings in OH by OH legal to docket into TX probate court by TX probate atty. Decades ago I was executrix for an TX aunt (back when females were still called executrix, LOL!) & pretty convoluted estate as prior marriages with no probate done..... Lineal heirship issues plus Land, O&G crossing state lines for NM & OK. OK very much required OK atty, notary, etc for anything. Makes me tired to remember. It's stuff like this that creeps up costs and time.

D - your dads trust, what's its finding source? If its been his SS or retirement that $ has stopped. Was there a hefty bank account POD to you to draw from? Is it that the land contact payment is the sole $ coming into the trust? If you can try to put paper to pencil as to what the costs are looking like to get the next 6 months done... Like atty fees, courthouse filing fees, CPA, your travel expenses, bonding fees. So I'd dad estate / trust can't cover the estimated costs plus 20%, just who is going to front the $? I'd really suggest you & bro each put up 50% of the estimated and you add in the 20% extra and you have some sort of memo of understanding on this and the $ goes into an account January 2, 2017. $ makes family act odd.... It may not be your brother... But his wife or a son in law who starts carping about how your doing things and spending $.

Also please do as Garden mentioned something to remind Akron that the land contract is totally binding and Akron must continue to pay and understands that Dads death does not alter the land contract. My cncern is this....Sometimes family "sells" property via a SCIN - self canceling installment note. Its a way to pass down stuff with minimal $ actually being paid - totally legit (but complex) and done often by the generational wealthy. You just want to make sure that Akron doesn't think the debt is gone as dad is gone.
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hey Garden, and thus the recommendation to start with folks that have been preparing trust return for past years. The answer is it depends - remember, the Trust holds the title to the property, so the step-up in value for capital gains on the personal asset going to heirs doesn't apply here. Dad created a separate entity that continues independent of the grantor's death....and not knowing how the trust was created, or the legal bits and bobs of the distributions....means that having someone familiar with the reporting from past tax returns is a key to transition. When you utilize seller-financed sale, it *usually* means that you have to break out interest, capital gains, and original basis in property as you collect payments. Yuck, and I don't specialize in trusts so this is NOT tax advice for this situation. I mainly wanted to reiterate that Dustien NEEDS to have professional advice on at least this year, possibly going forward. The lawyers that promote trusts for asset holding and transfer also have tax accountants they refer individuals to, funny that. A tax accountant will also be aware of what needs to be filed by which date which is essential with the IRS as you know.
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GSA, I thought that the heirs inherited the house at market value on the date of death, so that any capital gains that accrued from Dustien's father's sale of the house would begin accruing through the Trust, from the date of the Trust inception, but for the heir's interest in the house, from the date of her father's death. Am I confused?

Or is it b/c of the land contract sale, and the "seller-financed" aspect, that the gains are amortized over the entire life of the land contract?

Is a land contract sale treated the same as if Dustien's father had granted a seller-financed mortgage?

You are so right - this is NOT a DIY project!

This is a really complex scenario, I think.
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Dustien, some block offices have CPAs in them or have access for referrals. If your parents used block for the trust in Texas in the past, I would start there. Your problem is not just interest, it's the portion of any capital gain that the trust realized with sale of house which is amortized over the life of the loan. Stick with the folks who've been doing it or ask for a referral from them. You can use someone near you next year. When my mother died, even though I'm a CPA, we used the CPA firm that had been doing her taxes for years as they were familiar with her accounts and some investments that she had. When your distributions from the trust are processed, depending on how trust and mortgage were set up, you may have tax due on interest and a part of capital gains. Since you have people in multiple states receiving distributions, this is NOT a do-it-yourself project this year. Even if people like each other, money gets weird and taxable money especially. The money distributed from trust is not inheritance per se, so parts will be taxable. Get a person familiar with taxable situation for your father's state of residence, the state that the Trust files taxes in (if different), and dovetail with you and siblings.
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FF, I thought your parents house was sold, but if not, be very, very careful about assuming your parent's mortgage as opposed to making payments w/o assuming responsibility/liability. If you do, it WILL be reflected in your credit record that you're mortgagor under that mortgage. If you have a mortgage on your own house, that parental indebtedness could be enough to raise your interest rates.

Insurance rates are based on credit reporting company scores; increasing indebtedness could and probably would play a role (unless you're rich) in assessing your credit worthiness.
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Dustien, as to the issue of which state could be the source of a CPA:

First, no offense to anyone else who's posted, but my limited experience with Block convinced me never to rely on them for trust specific advice. Tax rate acceleration and other issues are major ones. And Trust accounting is a specific field.

I contacted one of the big 3 accounting firms, was sticker shocked at the rates they charged (not that I expected anything else though), started researching and contacted accounting firms until I found a small one with knowledgeable staff and could answer my questions without wanting to set an expensive appointment. It's possible this firm also was recommended by my (estate planning) attorney, who handles a lot of trusts. I just don't remember.

As it was, I made a good choice and would use that firm again. They prepared the 1041 and K-1s quickly and addressed all the issues in question.

I would find a trust accountant locally for the Federal issues, ask him/her about Ohio state trust issues and whether or not they're familiar enough to handle state trust taxation issues. If not, ask them for a recommendation for an Ohio accountant. That's generally the way attorneys handle referrals. I rely on them to find someone they feel confident in recommending.

As to your following post, I wouldn't challenge anything in the first paragraph. As I wrote, I think your father was wise, and now I'm learning he was very considerate, to create a situation in which the buyer could accommodate his own financial situation while buying the home.

As to paragraph no. 2, I believe interest is taxable, but given that the home will be held until the balloon payment, it could be considered an investment, or a "commercial" asset, so I don't know whether or not the principal would be taxable. This is out of my realm, which is why I would present this question to a CPA who handles Federal trust taxation.

As to each of you paying interest on your own share, I've handled this issue with my sister's trust, but that was back in 2004 and I confess my mind is having difficult recalling all those issues. So, to the best of my recollection, the trust paid the taxes for income to us.

I would have to dig out all the old tax records to verify that, but as IRS regs do change, I would definitely get accounting advice on this. I would also read the Trust again, carefully, to see if there are any provisions stating that the Trust pays taxes for (investment?) property producing income. I think this is the issue that makes this a "sticky" situation.

Something I have done on iffy issues is to e-mail the IRS and ask for an opinion. Then I have it in writing. It's much better than calling.

What may seem logical isn't always logical in trust accounting. Don't take a chance!
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Dustien, I am running into something similar, less complex, as my parents held the mortgage on my house, thus when they both passed, I will inherit the loan, and would need to pay myself.

I am using my parents Elder Law Attorney [who I had recommended as she is also my Elder Law Attorney] and she will walk me through this maze.

Thank goodness my parents had a CPA [again, who I had recommended many years ago as he was also my CPA at one time] so he will help me with their income taxes. I can't use "the box" on this one. In fact, I might start using the CPA again, because everything is now so complicated :P
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I would recommend you use a tax accountant. H&R Block, Liberty and those like them are not trained to handle tax issues you are concerned about.
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GardenArtist, the person who bought dad's house in Akron was the son of the neighbor and dad wanted him to have it, knowing he couldn't get it financed for a few years because of credit problems. That's why he gave him the 5 years needed to get it financed. There's still 3.7 years of that time left. I wouldn't want to force acceleration of the contract now, even if I could. He is paying a higher interest rate, and he knows that it's to his advantage to get it paid off as soon as possible. The fact that he's not done so tells me he can't yet and so we'll just have to wait for the baloon payment to come due.

In the meantime, it's my understanding that, though the principle of an inherited home is not taxable, interest is. The largest portion, of not all, of each payment at this stage is interest, so therefor taxable, right? If the payments are split between the 3 of us, then would we each be responsible for paying taxes on our shares going forward (knowing Dad's trust is responsible for 2016 taxes)?

Yes, until close to the end, dad was very pro active in his finances...the last couple of months it was getting hard for him though, as I'm sure it will for all of us. Bless his heart...but I knew he had trust that I would do my best to see to it all his wishes were carried out and I know that gave him some peace. I just hope I can...

I'm so glad you guys are all here to bounce this stuff off of. Thanks so much!
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Ok, here's another problem. Where do I get the CPA? The house is in Akron, where dad lived before he got sick. Then he lived 3 years with my brother in Texas. I, myself, live in Arkansas. Dad has used H&R block for the last 8 years for his taxes, first in Akron, then in Texas. Should I keep using them or find someone else, and if so, in Akron, Texas or Where I live? I think this is going to be more complicated then I was hoping it would be...
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Thanks, Igloo, for pointing out that income shown on K-1s needs to be incorporated into the heir's individual 1040.

And you're right - the first year REALLY is the hardest.
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D - as 2016 taxes will reflect dads death, I'd suggest you get a referral to a really good CPA for this tax year. Start gathering documents now so it's good to get filed in Feb after dad gets any 1099s. A trust or real estate atty will likely have a short list of CPAs.

It's going to cost for '16 but you just may be able to file 2017 - 2019 on your own by repeating the pattern set by the CPA. Then have CPA do the 2020 one when ballooned off happens.

About K-1s (form 1065) I get them from S corp (100%) & from LLCs (partnership). Whatever K1 shows (+ or -) goes into your 1040. So if you can get everything dad done & filed feb or march, it will be better so your not rushed on your personal taxes. Good luck, first year is the hardest.
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Dustien, the payments will be income to the Trust until the land contract is paid off, and those funds could be taxable depending on what deductions the Trust might have to offset them.

I think this is worth discussing with an estate planning or real property attorney for that reason. I would ensure also that the attorney has significant trust management experience. If your counsel is with a law firm, there's often a real property section complimenting the estate planning and other practice areas of the firm.

Since the land contract is a Trust asset, it shouldn't be affected by Probate.

What I would have an attorney specifically consider is whether or not the clause mandating continuation until pay-off time is iron clad, although I suspect that some wise planning went into this issue. Apparently your father wanted the buyer to have enough time to pay off the land contract - he must have wanted this person to have the property. After reading your other post on similar issues, I think your father was a very wise and proactive man.

In the interim, the payments would be allocated according to Trust terms - split between you and your brother. When you file the 1041 Trust tax return at the end of the year, you'll prepare Schedule K-1s for each of you. That will reflect the split allocation for you and for your brother.

What I do NOT know is how to treat this in the 1041 though. It would be a payment in and payment out, so it might offset any tax on the payments as income. It's been years since I did a K-1 and I don't recall specifically but I believe any payments received (such as for sale of a vehicle) were treated as Trust income as well as Trust payments to the heirs. So the net effect was $0. But this is based only on vague memories and should be clarified by a Trust attorney.

In the meantime, you can split the payments when received and disburse 1/2 each to you and your brother.

If you do see an attorney, please let us know what the advice was. This is an interesting situation.

I think AK Daughter would probably have some good advice on this situation as well.
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The loan payments are made to the Trust, deposited in the Trust and the Trust remains active for the next four years, through 2020. See your tax preparer.
You are probating Dad's estate, which is separate from the Trust, which has it's own taxpayer ID number, like a separate "person", with a separate tax return.
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