Foreclosure, 1099 and death

[kent]

A friend of mine is the trustee of an irrevocable trust.

As things would have it, the "owner" of the trust had his house go into foreclosure and sold for less than was owed. He moved out of the country prior to the sale and the trustee received a 1099 from IndyBank for the difference between the amount owed and the sale price. He died yesterday at the age of 96.

Given the house, located in California, had been refinanced to take out money (I think it's called "hard money"?) several years ago, I think the 1099 is legitimate and the "estate" needs to pay the taxes - yes? no?

No action will be taken without legal advice, just trying to get an idea of how things work.

Thanks in advance!

[mwcpa]

if the "trust" had no assets but the real estate and it was sold for less then the debt owed more than likely it would be considered insolvenent... look to IRC 108 for an exclusion that may fit the facts...

the "owner"... is this the beneficiary or the creator of the trust... he/she may have some issues... but if he/she is 96 and passed away and had no other assets then any issues may be a moot point unless their were some transfers that we not on the up and up where transferee liability may exist....

your friend needs to seek appropriate legal counsel given his/her fiduciary responsibility to the beneficiaries of the trust and related to his/her actions with the "owner" as you called the person.

[kent]

Mar 17, 2011 18:16:55 GMT -5 mwcpa said:

if the "trust" had no assets but the real estate and it was sold for less then the debt owed more than likely it would be considered insolvenent... look to IRC 108 for an exclusion that may fit the facts...

the "owner"... is this the beneficiary or the creator of the trust... he/she may have some issues... but if he/she is 96 and passed away and had no other assets then any issues may be a moot point unless their were some transfers that we not on the up and up where transferee liability may exist....

your friend needs to seek appropriate legal counsel given his/her fiduciary responsibility to the beneficiaries of the trust and related to his/her actions with the "owner" as you called the person.

mwcpa Thanks for the response. The "creator" of the trust did, indeed, have other assets ($200K roughly) so it seems the trustee needs to settle all tax issues, etc. BEFORE any funds are distributed to others. Last night I advised her to contact the attorney to make sure she does everything properly.

Given she doesn't know much about these things, or money in general, I told her if she distributes funds and there's no money to pay taxes, the IRS may be able to go after her. She will be setting up an appointment with attorney and will NOT distribute any funds.

Thanks again!