How Do You Sell a House from a Trust?

This originally aired on the Catholic Faith Network’s show CFN Live: https://youtu.be/-O9bYtfREzQ

Trusts can be complicated! So, what if I want to sell your home which is in your trust, is it going to be a problem? What should I know before I put out the “for sale” sign out on the lawn.

Is selling a home from a trust complicated?

Selling a home from a trust does not need to be complicated. In preparation of the sale, I would recommend the following steps:

 

Review the trust document to understand the terms and conditions related to selling assets. This includes identifying who has the authority to sell the property and any specific instructions or restrictions. Verify that the trust is the legal owner of the property. The title should be in the name of the trust, not an individual.

The trustee should assess current real estate market conditions to determine the best time to sell the property and achieve a favorable price. Obtaining a professional appraisal can help establish the property’s fair market value, which is important for setting a competitive sale price and for tax purposes.

Plan how the proceeds from the sale will be distributed according to the trust’s terms. This may involve setting up accounts for beneficiaries or reinvesting the funds. Be aware of state-specific laws and regulations that may affect the sale of a property from a trust, as these can vary significantly.

Who is the one selling the home from the Trust?

The trustee is the individual or entity appointed to manage the trust’s assets according to the terms set out in the trust agreement. Ensure that the trustee has the legal authority to sell the property. The trustee is typically responsible for managing the trust’s assets and must act in the best interest of the beneficiaries.

In some trusts, multiple trustees (co-trustees) are appointed. They must work together to make decisions about selling trust property, often requiring unanimous or majority agreement, depending on the trust’s terms.

While beneficiaries do not have the authority to sell trust property, they may have a say in the decision if the trust document requires their consent or if they petition the court for a sale under specific circumstances. In cases where there is a dispute or the trust document is unclear, a court may appoint a trustee to manage the sale of the property.

Who should assist the Trustee in the selling the home?

A team approach is the way to go. You want the attorney, financial advisor, tax professional and real estate agent on your team.

Consider hiring an attorney or financial advisor experienced in trust and estate matters to guide you through the process and ensure compliance with legal requirements.

Consult with a tax professional to understand any tax consequences of the sale. This includes potential capital gains taxes and how the proceeds will be distributed to beneficiaries.

Work with a real estate agent familiar with selling properties held in trust. They can help navigate the complexities and market the property effectively. 

What are common issues and requests after contract and prior to closing?

Several documents will be required. A copy of the trust and a trust affidavit stating the trust is still in full force and effect and that the trustee is indeed the person authorized to conduct the sale on behalf of the trust.

Other documents may include an heirship/marital affidavit completed by a disinterred third party, who can attest to knowing the grantor of the trust and who is familiar with their family and marital history.  Also, death certificates for certain parties may also be required.

Please note when selling a coop, either through an estate or a trust, you will be required to coordinate with the coop’s management company and coop attorney for additional closing requirements.

 How do you sell a home from a revocable living trust after the grantor dies?

There are a number of steps to be considered:

Carefully read the trust agreement to understand the terms and conditions related to selling the property. This includes identifying the successor trustee and any specific instructions for handling the trust’s assets. Ensure that the successor trustee has the legal authority to sell the property. The trust document should specify who takes over as trustee after the grantor’s death.

Secure a certified copy of the grantor’s death certificate, as it will be needed for legal and financial transactions related to the trust.

Obtain a professional appraisal to determine the property’s fair market value. This is important for setting a competitive sale price and for tax purposes. Verify that the trust is the legal owner of the property and that the title is clear. Address any liens or encumbrances that may affect the sale.

Work with a real estate agent experienced in trust sales, as well as legal and tax advisors, to ensure compliance with all legal and tax requirements. Make any necessary repairs or improvements to enhance the property’s marketability. Stage the home to attract potential buyers.

List the property for sale and market it through appropriate channels to reach potential buyers. Your real estate agent can assist with this process. Review offers with the help of your real estate agent and negotiate terms that align with the trust’s best interests. Accept the most favorable offer.

Work with a title company or attorney to handle the closing process. Ensure all legal documents are properly executed and that the proceeds are distributed according to the trust’s terms.

Follow the trust’s instructions for distributing the sale proceeds to beneficiaries. This may involve setting up accounts or reinvesting funds as specified in the trust. 

What are the tax consequences of selling a home from a trust?

There are several factors and considerations when determining the tax consequences:

The Taxation of the sale will depend upon whether the trust is Revocable or Irrevocable. The Capital gain will have to be calculated and a determination of whether the sale qualifies for the $250,000 capital gains exclusion ($500,000 if married).

If the home was inherited, it might receive a step-up in basis to its fair market value at the time of the grantor’s death. This can significantly reduce capital gains if the property is sold shortly after being inherited.

Trusts are subject to different tax brackets than individuals, often reaching higher tax rates at lower income levels. This can affect the overall tax liability from the sale.

If the proceeds from the sale are distributed to beneficiaries, they may be responsible for any taxes on the income, depending on how the trust is structured and the distribution rules.

What happens after closing? Where does the money go?

For trusts, the sales proceeds must be made payable to the trust and deposited into the trust’s bank account. To open a bank account, they will require a copy of the trust and a TIN number (however, you this could vary depending on the type of trust and whether the grantor of the trust is still alive).

• Trust Account: The sale proceeds are usually deposited into a trust account managed by the trustee. This account is separate from the trustee’s personal accounts and is used to manage the trust’s assets.
• Payment of Expenses: Before distributing the proceeds, the trustee may need to pay any outstanding expenses related to the property, such as closing costs, real estate agent commissions, taxes, and any remaining mortgage or liens on the property.
• Distribution to Beneficiaries: After expenses are paid, the remaining proceeds are distributed to the beneficiaries according to the terms of the trust. The trust document will specify how and when distributions should be made, which could be in lump sums, installments, or reinvested for future distribution.
• Reinvestment: In some cases, the trust may require or allow the trustee to reinvest the proceeds into other assets or investments, which can continue to benefit the beneficiaries over time.
• Retention in Trust: The trust may also specify that the proceeds remain in the trust for a certain period or until specific conditions are met, such as a beneficiary reaching a certain age.

When in doubt, the first step should be to consult with an attorney who is experienced in real estate law and trust law as well as a tax professional. The attorney will be able to guide you and ensure that the sales I conducted properly. We hope you found this article helpful. Contact our office today at 1 (800) 680-1717 and schedule an appointment to discuss what makes sense for you and your loved ones.

Disclaimer: The information provided above is for general informational purposes only and is not legal advice.