Early 2022, client set up an irrevocable trust - main purpose of which was to protect assets in the event she has to go into long-term care. Yes, she is aware of the 5 year lookback period. For whatever reason, she decided to place her personal residence in the trust. She is paying a monthly rent amount into the trust so the trust has the funds to pay insurance, taxes, repairs, etc. on her house.
Per information provided by the attorney, it appears the trust is or can be treated as a grantor trust - therefore, everything should be reported on the taxpayer's Form 1040 instead of Form 1041.
Client does not have any access to the bank accounts nor deposits nor pays any of the expenses. Her son (as trustee) transfers money to her as needed.
2 questions if anyone has any help they can provide regarding the personal residence.
- The house - when sold whenever or transferred to the heirs if/when trust was terminated - would no longer qualify for the exclusion of gain from sale of residence up to 0,000. (there should not be any gain near this amount any way.) The basis would be the lower of cost or fair market value when placed in the trust, correct?
- Since this appears it is to be treated as a grantor trust, how does the activity surrounding the personal residence get reported on client's tax return? Income / expenses reported on Schedule E ..... and if there is a loss, would it be allowed? If a loss would not be allowed (if there is one) when filed as grantor trust on client's Form 1040, can a Form 1041 be filed and be allowed to report a potential loss on the personal residence and then passed through to client's 1040 via K-1?
FYI - besides the personal residence, the rest of the trust is farmland.
Thanks Cathy Herber