Trust – Joint Tenants – Now What?

4 Replies

My father owned several rental properties IN MISSOURI as an investment and supplemental income for his retirement. He placed all of them into a trust 1) as a stronger mechanism than a will to ensure that his wishes and desires be carried out and 2) to avoid probate. My father passed away, and my mom and I are co-trustees. We intend on keeping and managing the rental properties. So, the first question – Does this make us joint tenants? The following questions: We have a joint bank account, but how are taxes handled? Do we need to enter into some business structure? Reading about LLCs, I'm concerned that we won't be able to get a loan, if needed. Thanks for the assistance.

You are not joint tenants.  The Trust owns the property.  You are joint trustees.  The trust will have all the rules you have to follow and what authorities you have.  Look carefully to see if you can let the Trust take on debt.  Some trusts allow that and some do not.  It will also have a section on what you can and can not do with assets.  Can you sell an asset, and if so how are the proceeds distributed.  Sometimes the Trustees are also the beneficiaries, but not always.  You must, by law, manage the assets in the trust for the benefits of the beneficiaries.

The Trust should have its own tax identification now.  You could have used your dads SSN for the Trust income and expenses until the day he died then you get an EIN from the IRS for the Trust.  You can do that on-line or the person who does your taxes can do it for you.  You will need to file taxes for your dad up to the day he died, then another tax form for the Trust, and maybe another for your dad's estate if his estate has taxes (anything outside the trust).  

For the Trust it is VERY important that you set up a bank account in the name of the trust and ONLY do trust business with that account.  Use it for the rental properties, anything in the trust.  NEVER use the trust to, say, pay for your car payment.  If you are a beneficiary of the trust and can have or are due a distribution of Trust assets, you write a check to the beneficiaries, as allowed/required by the Trust.  Then the beneficiaries cash the check and make their own car payment.  Keep clear records, a ledger.  Trust funds can only go directly for Trust business, including to beneficiaries.  How the Trust beneficiaries can get the asset will be explained in the Trust.  Often its wording like:  Peter gets $1000 when he turns 35 years old, Sally gets $25000 if she goes to college, everything else is split evenly between Susan and Herman.  

For the Trust bank account you can have a signature required from BOTH you and the other Trustee, or if the Trust allows, just one of you.  Better for checks and balances if the checking account requires 2 signatures.  Trust taxes are paid for from Trust funds.  

The Trust is your business structure.  Read it and it will say what authorities your and your mom have, what you can not do, and how you can take distributions of the assets.  

MANY Trusts will pass from the deceased parent to the living parent (who is also called the Trustor) THEN after the second parent dies it passes on to the child who becomes the Trustee.  This is called an A-B Trust.  You may want to verify that you and your mom are both Trustees now.  For tax purposes, generally what I just wrote above happens and you would be the beneficiary, your mom the Trustor at this point in time in most Trusts.  Also with the A-B Trusts the second parent generally has the right to utilize the Trust assets or 1/2 of the Trust assets for his/her living expenses, which is very different that if it is NOT an A-B Trust.  In this case she can make a car payment with Trust assets, or pay any other living expense.  But you also need to make sure she identifies how much is 1/2 at the date of your father's death, write it down, so the other half of the assets are preserved for you, after she passes.

You do NOT want to put the Trust in an LLC. No reason to. And LIKELY the Trust has a clause about lawsuits and using assets for lawsuits. I think Trusts are better that LLCs, but recognize that BP folks don't seem to have that same assessment.

Ask if you have questions.  I was the Trustee for my parents Trust.  It had many assets including  rentals that I liquidated for the beneficiaries--11 people inherited and no, I did not want to manger the rentals from 2000 miles away with 11 hands wanting money!

Tip of the day for you.  Get a written appraisal of EACH property's value as of the date of your father's death. This sets its new value for all of the property if you and your mom are co Trustees or 1/2 if its an A-B Trust for capitol gains purposes if you sell a property.  Do that ASAP.  And appraisers will give you a discounted cost if you have a bunch of properties and no bank to be bothered with.  Tell them its only for tax purposes.

And Sorry for your loss!

Hi Lynnette,

THANK YOU for taking the time to help and really clarifying so much for me/us. Your articulate response was easy for me to follow, and I feel more much informed to make decisions. Mom and I have so much learn, and the trust has been one of the more challenging aspects for us to grasp. I wish I could help you in return, but I don't have much advice to offer yet. :)

@Ann B.   you are welcome.  I had a major advantage over most people who have to work with inherited Trusts.  My parents made me learn about it, talk with the attorney who wrote it and the one that did an amendment to walk me through it and answer questions when they were alive.  I have two 15 year old kids, and I have already made them meet with the attorney who wrote my trust and had it explained to them.  They also meet yearly with my financial manager.  I don't want them to be in shock having to deal with things when I am gone.  I think its important to pass on the information and understanding, not just a pile of papers.  And with only 2 years of meeting with the financial manager, they come up with some pretty good questions!

You are lucky that you dad set up a trust.  Probate sucks!  I had to go through that process with another relative.  So sad to see the assets sit and deteriorate and not be able to do what you need to as attorneys suck up all the money!

Glad I was able to help you.  And you can pass it on years from now to someone else:)

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