JohnLydicInvestor
Two Glitches
Wednesday, December 30 2009 12:45 AM
I continue to use land trusts successfully to buy and sell, but always run into the same two glitches: One, closing attorneys or escrow agents always demand a social or tax id. The trust, of course, holds no id. I end up providing my own tax id, even though the tax burden is carried, usually disproportionately, by the beneficiaries. Any insights? Two, the proceeds of a sale are made out to the name of the trust. My bank won’t allow a deposit of the check, even though I am the trustee. And I don’t want to open a separate account for every transaction. I have provided distribution instructions at closing per trustee, which works once in a great while. And sometimes I can have the money wired into my account without question. Otherwise, I have to sneak the check into my account by depositing it through another bank’s atm. An easy and consistent solution would be much appreciated. (Note: I’m talking about actually buying and selling with a land trust, not using the trust as a mechanism to flip, so quit-claiming out of the trust defeats the purpose.) Thanks. John
REPLY
Randy HughesMaster Advisor-39 years of experience
Re:Two Glitches
Wednesday, December 30 2009 01:31 PM
Two Glitches, SEE MY RESPONSES BELOW. RANDY I continue to use land trusts successfully to buy and sell, but always run into the same two glitches: One, closing attorneys or escrow agents always demand a social or tax id. The trust, of course, holds no id. I end up providing my own tax id, even though the tax burden is carried, usually disproportionately, by the beneficiaries. Any insights? FIRST, IF YOU ARE SELLING THE BENEFICIAL INTEREST IN THE LAND TRUST...NO TAX ID # IS REQUIRED. HOWEVER, I ASSUME THAT YOU ARE SELLING THE PROPERTY AND DEEDING OUT OF THE TRUST TO THE NEW BUYER. IN THIS CASE YOU WILL BE ASKED FOR A REPORTING NUMBER (TO REPORT THE SALE TO THE IRS). IF YOU HAVE A CORPORATE TRUSTEE...YOU COULD USE ITS NUMBER. IF NOT, YOU WILL NEED TO HAVE A STANDARD NUMBER THAT YOU USE IN THESE SITUATIONS. I WOULD DEFINITELY NOT GIVE THEM YOUR SS# BUT USE A "CATCH ALL" FEIN#. Two, the proceeds of a sale are made out to the name of the trust. THE TRUST OR THE TRUSTEE'S NAME??? ASK THAT THE CHECK EITHER BE MADE OUT TO YOU...AS TRUSTEE OR JUST HAVE THE MONEY WIRED INTO THE ACCOUNT YOU WANT IT TO END UP IN. My bank won’t allow a deposit of the check, even though I am the trustee. And I don’t want to open a separate account for every transaction. I have provided distribution instructions at closing per trustee, which works once in a great while. And sometimes I can have the money wired into my account without question. Otherwise, I have to sneak the check into my account by depositing it through another bank’s atm. An easy and consistent solution would be much appreciated.NOT SURE WHY THEY ARE DOING THIS. IF THE CHECK IS MADE OUT TO YOU AS TRUSTEE AND YOU ENDORSE IT...THEN THERE SHOULD BE NO PROBLEM DEPOSITING INTO YOUR ACCOUNT. YOU MIGHT GET ANOTHER BANK. THEY ARE NOT ALL THIS STRICT. (Note: I’m talking about actually buying and selling with a land trust, not using the trust as a mechanism to flip, so quit-claiming out of the trust defeats the purpose.)
Randy Hughes
TomTrustee
Re:Re:Two Glitches
Thursday, December 31 2009 09:58 AM
As a Corporate non-profit Corporation our TIN may be used for the trust. We are not subject to taxes for the individual trusts. Usually the settlor of the trusts TIN is used. However, each beneficiary of the trust is responsible for the payment of any taxes due. Usually at the closing of a trust the payoff or final check is sent to the trustee, either by wire directly into our account or by mail. Of course these would be “good funds” and we would disburse them usually within 24 hours. We would then distribute the funds as indicated in the trust agreement and/or by direction of all of the beneficiaries of the trust. The trustee would be the owner of the property and would be able to transfer ownership by Grant Deed rather then a Quit Claim Deed. Thomas K. Standen Equity Holding Corporation 209-966-3445 – ext 11 tom@equityholding.org
Thomas K. Standen
Re:Re:Re:Two Glitches
Saturday, January 02 2010 03:14 AM
Thanks, Randy and Tom, and Happy New Year! Yeah, I act as Trustee as well as one of the beneficiaries, but I never deed in or out. The trust purchases the property, and the trust sells the property. I use a land trust, mainly, to protect the interests of my capital partners (beneficiaries), in case I get hit by a bus. And, yes, Randy, it’s the reporting number I’m concerned about. So far, I have always used my general business tax id. But what do I do with a 1099, write “N/A” on it and send it back to the IRS? Or, would I provide multiple tax id’s from the beneficiaries along with a schedule of beneficial interest? The former would be preferable! As far as a check, I’ve asked time and again to make it out to “me” as trustee of the so and so trust. And I’ve been told time and again, they can only make it out to the name of the trust. I’ll stick with wiring and hope these persnickety escrow folks pry no further. Thanks, again, John
Re:Re:Re:Re:Two Glitches
Saturday, January 02 2010 06:25 PM
John, IT CONCERNS ME THAT YOU ARE SERVING AS BOTH TRUSTEE AND BENEFICIARY. THIS IS CONTRARY TO STANDARD LAND TRUST LAW. IF YOU ARE EVER IN FRONT OF A JUDGE WITH A TRUST LIKE THIS HE WILL INVALIDATE IT AS A "DRY" TRUST. WHAT HAPPENS IS THAT IF THE TRUSTEE AND BENEFICIARY ARE THE SAME PERSON, THE INTERESTS ARE MERGED AND THEREFORE THERE IS NO TRUST.
Re:Re:Re:Re:Re:Two Glitches
Sunday, January 03 2010 12:47 AM
I know it’s not recommended, but it’s my understanding that it is permissible for the trustee to also be a beneficiary so long as the trustee is not the only beneficiary. Back to the reporting issue, what does a third party trustee do with a 1099 when the beneficiaries are responsible for reporting their own portion of the taxes. In other words, what do “I” do when I receive a 1099 when I have provided my “catch-all” TIN# to escrow for reporting purposes? For example, come tax time last year, one of my beneficiaries said that his accountant told him I needed to provide a 1041K. I explained, as written in the trust agreement, “The Trustee shall have no obligation to file any income, profit or other tax reports or returns or pay such or any other taxes. The beneficiaries will make all such returns and reports and pay general real estate and all other taxes or charges payable with respect to the property and to the earnings, avails and proceeds of the property or based on their interests under this agreement.” This part of the land trust I understand, but since I have provided my own personal business TIN# (because escrow agents say funds cannot be released without one), what in the heck do I do when I receive a 1099 for the whole kit and caboodle? Thanks
Re:Re:Re:Re:Re:Re:Two Glitches
Sunday, January 03 2010 08:00 AM
John, SEE MY COMMENTS IN BOLD BELOW. RANDY I know it’s not recommended, but it’s my understanding that it is permissible for the trustee to also be a beneficiary so long as the trustee is not the only beneficiary. YES, I BELIEVE THAT TO BE TRUE...BUT I STILL DO NOT RECOMMEND IT. Back to the reporting issue, what does a third party trustee do with a 1099 when the beneficiaries are responsible for reporting their own portion of the taxes. In other words, what do “I” do when I receive a 1099 when I have provided my “catch-all” TIN# to escrow for reporting purposes? TECHNICALLY A LAND TRUST IS A PASS-THRU ENTITY IN THE EYES OF THE IRS. THEREFORE, AS LONG AS THE BENEFICIARIES CLAIM THE SALE RESULTS APPROPRIATELY YOU AS TRUSTEE DO NOT HAVE TO DO ANYTHING. IF YOU (OR YOUR "CATCH-ALL" ENTITY) WERE EVER AUDITED YOU WOULD NEED TO PROVE THAT THE BENEFICIARIES REPORTED THEIR TAX RESULTS FROM THE SALE. For example, come tax time last year, one of my beneficiaries said that his accountant told him I needed to provide a 1041K. I explained, as written in the trust agreement, “The Trustee shall have no obligation to file any income, profit or other tax reports or returns or pay such or any other taxes. The beneficiaries will make all such returns and reports and pay general real estate and all other taxes or charges payable with respect to the property and to the earnings, avails and proceeds of the property or based on their interests under this agreement.”I AM NOT SURE WHAT A 1041k FORM IS...THERE IS NO SUCH FORM ON THE IRS.GOV WEBSITE. BUT, ANYWAY, I AGREE WITH YOU THAT YOU HAVE NO OBLIGATION AS TRUSTEE TO SUPPLY ANY TAX FORMS TO THE BENEFICIARY PER YOUR RECITATION ABOVE AND THE PASS-THRU LOGIC ABOVE. This part of the land trust I understand, but since I have provided my own personal business TIN# (because escrow agents say funds cannot be released without one), what in the heck do I do when I receive a 1099 for the whole kit and caboodle?SEE MY COMMENTS ABOVE.
Re:Re:Re:Re:Re:Re:Re:Two Glitches
Monday, January 04 2010 12:55 AM
Thanks, Randy, for the quick replies. That's what I kinda figured, that I'd just have to keep good records and handle any irs questions retrospectively.
