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Help with a trust sale


JJStephens

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Client has been with me something just short of a hundred years. Several years ago they formed a trust with a friend to purchase a rental (the trust has no other assets). The deal was, the other guy could buy them out or they could request to be bought out within five years. Just short of the five year deadline client decided to exercise their option.

They think the guy is merely buying out the property but they keep the trust; the way they have described it I think he's buying their share of the trust. I have no idea why they would want to keep the trust--they do not plan to purchase any additional property.

They're asking me if the guy should make the check to them or to the trust. I have only limited experience with LLC/partnership sales and none with trusts. I do plan to tell them to get an attorney to write up the deal. Anybody have any other guidance on this?

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I have no clue, but I would like to know how this works out, so please keep us updated.

My first question is: how is the property titled?  Assuming it is in the name of the trust, then I would look for basis in the trust (just like I would if it was a partnership).  I think I would try to handle it just like a sale of a partnership.

I know that is not much help, but see my first sentence.

Tom
Newark, CA

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This does not sound like it was set up correctly originaly. A trust has a trustee, corpus, and beneficiaries. It is very possible that they set up a trust with themselves as trustees. But who are the beneficiaries? If they set themselves up as beneficiaries then who is the trustee? It is assumed that they both transferred money to the entity to buy the property. I have never heard of a trust interest being sold.

if my comments are all wet for the present case and this is a legitimate thing, then I guess we all have something to learn.

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I do not know if you have found out more info...

But you have person A and B.  They created a Trust.  Trust bought property.  Person B wants the property out of the Trust.

Trust sells property to Person B for FMV, basis is purchase price in the Trust.

Person A has a trust that they continue to manage, (even if with no tangible assets, only the cash left from the sale) And Person B exits the trust for whatever reason.

I can think that there was a lot of reasons that they went this route instead of a simple Partnership LLC.  (Mainly? Person B being bankrupt/hiding ownership/divorcing/incompetent/etc) But without more info, it seems pretty straight forward.

Rich

 

 

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On ‎04‎/‎21‎/‎2017 at 1:37 PM, JJStephens said:

Client has been with me something just short of a hundred years. Several years ago they formed a trust with a friend to purchase a rental (the trust has no other assets). The deal was, the other guy could buy them out or they could request to be bought out within five years. Just short of the five year deadline client decided to exercise their option.

They think the guy is merely buying out the property but they keep the trust; the way they have described it I think he's buying their share of the trust. I have no idea why they would want to keep the trust--they do not plan to purchase any additional property.

They're asking me if the guy should make the check to them or to the trust. I have only limited experience with LLC/partnership sales and none with trusts. I do plan to tell them to get an attorney to write up the deal. Anybody have any other guidance on this?

I don't  believe there is individual  ownership in a trust unless it is a REIT (real estate investment trust) which is a publicly traded investment. Do they really have a trust? Have you seen the trust document? Was the property titled to the trust? Assume there was a trust bank account which income was deposited to and expenses paid from. 

So if it truly is a trust, the purchase would be from the trust to the individual beneficiary. What happens next depends on the trust document.  Most likely the trust will distribute the cash to the beneficiary's then income will be allocated on K-1.

If the sole purpose of the trust was to hold the property until purchased by beneficiary, then trust language should call for termination at that point.

 

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