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Question:

I am the sole trustee and sole beneficiary of my deceased (2022) mom’s revocable realty trust. The property is located in Massachusetts. I live in Rhode Island. I have decided to sell the property. My question is this. Should I transfer the property from the trust to me and then sell the property or should I keep things the way they are (i.e., property still in realty trust with me as trustee) and sell it? What are the pros and cons of each decision, legally and tax-wise?

Response:

It may be somewhat easier to transfer the property to you before selling it because it would avoid having to file a tax return for the trust, though the tax result will be the same either way.

You describe the trust as a “revocable realty” trust. That is in fact mixing two terms. If your mom created a revocable trust, it became irrevocable upon her death. If you sell the house from the trust, the closing attorney will almost certainly require you to obtain a tax identification number for the trust and you will have to file a separate tax return for the year you sell the property. This will not result in the trust paying any tax because if you distribute the house proceeds to yourself, any gain on the sale of the property will pass through to you. And there should be little or no capital gain since the house received a step-up in basis upon your mother’s death. The gain would be only any increase in the value of the property since your mother’s death in 2022.

Massachusetts, however, is somewhat unique in using nominee realty trusts to hold title to property. If that’s what you have, and if you’re the sole trustee and beneficiary, then for all practical purposes you’re already the owner of the property. You should be able to deposit the sale proceeds directly into your own account and use your Social Security number for the trust. However, I say “should” because some closing attorneys still require nominee realty trusts to get their own tax identification numbers and go through the same process described above for irrevocable trusts.

While it may be somewhat easier from a tax perspective to deed the property out to you before you sell it, it does entail the preparation and recording of a deed and trustee certificate to make the transfer. That entails some extra cost which may be more or may be less than the cost of the extra tax return, but neither should be substantial.

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Does Nominee Realty Trust Pass Through Probate? How Do I Report Capital Gain on Sale of House in Realty Trust? Does Trustee of Nominee Realty Trust Need Beneficiary’s Approval to Sell Real Estate?