How to Manage Real Estate for a Trust
6 of 7 in Series: The Essentials of Holding and Diversifying Trust Assets
Often, the grantor’s residence may end up in the trust, either during lifetime or after the grantor’s death. Or, the grantor may have held interests in either residential or commercial real estate, either outright, or through partnerships. Dealing with real estate inside of a trust is really no different than dealing with it on a personal level. The trust must pay the taxes, the insurance bill, and any other costs involved with the maintenance of that property.
The expenses involved with maintaining the grantor’s home aren’t always clear cut. If the family residence remains in trust while the family is still in residence, part of your job is determining which expenses the trust should and shouldn’t pay for.
Mortgage payments, taxes, and insurance on the house itself are clearly the responsibility of the trust. You can also make a good case for lawn/garden care and trash and snow removal. If the house’s contents are trust property, their insurance is also the responsibility of the trust.
Be cautious about many of the other costs associated with running a house, such as utility payments or cleaning. Discuss with the family precisely what items the trust is responsible for. Take into consideration what you think the grantor’s purpose was in placing the house into trust, and act accordingly. Failing to have a stated plan in place may leave you in the unenviable position of rejecting reimbursement for food, medical care, or even bills to have the dog groomed.
Although the rules for owning real estate, including buying and selling, are the same for trusts as they are for individuals, two exceptions exist. Although individuals are entitled to a $250,000 capital gains exclusion for the sale of a personal residence, trusts aren’t. On the other hand, if that same residence is sold at a loss, the trust is allowed to claim the loss on Schedule D of the trust’s Form 1041 because the house isn’t the trust’s personal residence.