How Does the Sale of Property Owned by a Nominee Realty Trust Work?
Can you advise on how to dissolve a Realty Trust upon sale of the only realty property in the Trust? My sister and I would like to have the Buyer of the property issue checks to both of us individually. We will file a final Tax Return for the Trust, but wonder whether we must complete other documents showing the Gift from the Trust to the two of us.
Without seeing the trust itself, I will assume it is a nominee realty trust, a form of real estate ownership unique to Massachusetts. As trustees, you and your sister own and operate the property on behalf of and pursuant to the directions of the beneficiaries. These are generally named on a schedule of beneficiaries that is not recorded at the registry of deeds. Assuming you and your sister are the beneficiaries, then you should be able to direct that two equal checks be issued, one to each of you. (It’s not unusual for these schedules of beneficiaries to be misplaced or, as in a case we’re dealing with in our office, never to have been created in the first place.)
Nominee realty trusts can be useful tools to hide the identity of the true owners of real estate, to facilitate gifting of shares of the property over time, or to appoint one or more trustees to manage the property on behalf of multiple owners. They can be very useful for the ownership of vacation homes or rental property by several family members.
In terms of taxes, I agree that the trust should not pay taxes on the sale, though it will have to file a final return. However, you and your sister may have to pay tax on the capital gain realized on the sale, especially if you have been depreciating the property. Finally, assuming everything above is correct, no gift tax return needs to be filed since you and your sister are in fact already the owners of the property.
In any case, the lawyer handling the sale should be able to look at the actual trust and advise you on all of this.