Q: Is there any harm in leaving a house titled in a trust name after a person is deceased? All other assets have been disbursed, the house is a rental and the rent is split evenly (after expenses) among the siblings, each claim the income and expenses on our individual tax returns, is that okay? --Denise, Elk Grove, CA
A: Unless the trust terms state otherwise, a trust cannot continue indefinitely. The trustee is required to follow the terms of the trust, which may require that the house be sold or distributed to the beneficiaries. If the trustee fails to do this, a beneficiary could sue him or her for breach of duty.
There are also expenses involved in keeping a trust going. Unless the trust waives them, annual accountings are required, and the trustee may be entitled to compensation. Further, the trust has to file a yearly income tax return.
Even if these items do not cause you concern, you will find the situation becomes quite complicated if any beneficiary dies or becomes incapacitated, or decides he or she wants to sell his or her portion of the property.
For example, if you inherited the property from your parents, you can eliminate or minimize property tax reassessment under CA law using the parent-child exclusion. (Note: If this is the case and the paperwork to document this exclusion has not yet been filed, you should consult with experienced counsel to be sure this step is handled properly). But if one of the children then dies before the property is ever in the child's name, you have a more complicated situation with the county assessor if the conveyance has to come from the trust.
I would distribute the rental to the beneficiaries in accordance with the terms of the trust. Then the co-owners could create a tenancy-in-common agreement to document their agreement as to how bills will be paid and net proceeds distributed. Each owner should hold their portion of the rental in their own revocable trust or otherwise address it in their own estate plan.
Remember to maintain insurance and act together to make the decisions that the trustee has been making.
If the trust has not been filing an income tax return and you and your siblings have been claiming the income and expenses on your individual returns, I recommend that you consult with an attorney or your CPA regarding the filing requirements for trusts.
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