My family has a 3/1 that is owned out right free and clear in Massachusetts. It is currently owned in an irrevocable trust, with my mother inlaw and aunt inlaw as trustees and beneficiaries (I presume this the correct structure). Initially, they were going to sell it and split the profit, but I explained the benefit of renting the property out, keeping the asset, splitting the cash flow as a source of retirement, tax benefits, etc. My question is, what are the proper steps to take when renting out with this type of ownership? I presume we need a Dwelling Fire policy in the trust's name. How do we file taxes for the property? Do we need an Federal Tax ID Number? Does my aunt and mother in-law both get K-1's at the end of the year?
Any guidance would be much appreciated!
I'm not 100% on how the taxes are done so I'll be interested to hear what is said here.
@George Post Yes, the trust will need to file a tax return. It will file form 1041 and it will need a tax ID (EIN). A trust tax return can be complicated, so you will want to find a CPA that is familiar with trusts that own real estate rentals. Your mother-in-law and aunt-in-law will receive a K-1 from the trust as the beneficiaries. As @John Underwood mentioned, you will need insurance for the property in the name of the trust.
Thank you for your responses gents!