If A Property Is In Trust Can It Be Sold?

If A Property Is In Trust Can It Be Sold - Selling Property Held In Living Trust Before Death - What To Do With Proceeds From Sale Of House In Trust

If a property is in a trust, can it be sold? 

In this article you’ll learn about: 

  • if a property in a trust can be sold
  • selling property held in a living trust before death
  • tax implications of selling a house in a trust before death
  • what to do with proceeds from the sale of a house in a trust
  • can a trustee sell trust property without all beneficiaries approving

Keep scrolling to learn more.

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If A Property Is In Trust Can It Be Sold?

Yes, a property held in a trust can be sold. 

However, the process for selling a property held in a trust differs from selling a property held personally.

The trustee of the trust is the individual or entity responsible for managing and making decisions regarding the trust’s assets.

This includes the sale of the property.

Selling Property Held In Living Trust Before Death

Selling property held in a living trust before the grantor’s death typically involves a straightforward process.

This is because the grantor (the person who created the trust) is still alive and retains control over the trust assets. 

Here are the steps to sell property held in a living trust:

  • Confirm Trust Terms: Review the trust document to ensure that it authorizes the sale of the property. Most living trusts provide the grantor with the authority to buy, sell, or otherwise manage trust assets during their lifetime.
  • Select a Trustee: The grantor (or a designated successor trustee) will serve as the trustee responsible for managing and overseeing the sale of the property.
  • List the Property: Work with a real estate agent or broker to list the property for sale. The trustee, acting on behalf of the trust, will sign the listing agreement.
  • Market the Property: The property will be marketed, and potential buyers will view the property, make offers, and negotiate with the trustee.
  • Accept an Offer: When an acceptable offer is made on the property, the trustee can negotiate the terms of the sale, including the sale price and closing date.
  • Due Diligence: The buyer’s due diligence process will take place, which may include inspections, title searches, and financing arrangements. The trustee may need to provide necessary documentation related to the property and the trust.
  • Closing: The closing process is similar to a standard real estate transaction. The trustee will sign the necessary documents on behalf of the trust, and the sale proceeds will typically be directed to the trust’s accounts.
  • Distribute Proceeds: After the sale is completed, the trustee will distribute the proceeds according to the trust document’s instructions. This may involve distributing funds to beneficiaries or reinvesting the proceeds into other trust assets.
  • Record the Sale: Ensure that the sale of the property is recorded with the appropriate county or city authorities to update the public record and reflect the change in ownership.

Read More: What Are The Disadvantages Of Putting Your House In A Trust?

Tax Implications Of Selling A House In A Trust Before Death

Selling a house held in a trust before the grantor’s death can have tax implications for the grantor and the trust. 

One of the primary tax implications of selling a house in a trust is the potential capital gains tax

When the house is sold, the difference between the sale price and the property’s adjusted basis results in a capital gain. 

If the gain is significant, it may be subject to capital gains tax.

If the trust is a revocable living trust, the IRS generally treats the trust as a grantor trust.

The grantor continues to report the sale and pay any capital gains taxes on their individual tax return (Form 1040). 

The trust’s tax identification number (EIN) is typically used for informational purposes only.

If the trust is irrevocable, it may have its own taxpayer identification number (EIN).

Any capital gains realized from the sale of the house would typically be reported on the trust’s tax return (Form 1041). 

The tax rate for trusts can be higher than individual tax rates.

This can impact the overall tax liability.

Read More: Tax Implications Of Transferring Property Into A Trust

Selling A House In A Trust After Death

Selling a house held in a trust after the grantor’s death involves a specific process. 

Here are the key steps to selling a house in a trust after the grantor’s death:

  • Confirm Trust Terms: Review the trust document to ensure it authorizes the sale of the property after the grantor’s death. 
  • Successor Trustee: Identify and designate the successor trustee, as named in the trust document or as per state law, to manage and oversee the sale of the property. The successor trustee has the legal authority to act on behalf of the trust after the grantor’s death.
  • Property Valuation: The trustee must determine the fair market value of the property as of the date of the grantor’s death. This valuation is crucial for calculating potential capital gains tax liability for the beneficiaries.
  • List the Property: Work with a real estate agent or broker to list the property for sale. The successor trustee will sign the listing agreement on behalf of the trust.
  • Accept an Offer: When a suitable offer is made on the property, the successor trustee can negotiate the terms of the sale, including the sale price and closing date.
  • Due Diligence: The buyer’s due diligence process will commence, involving inspections, title searches, and financing arrangements. The successor trustee may need to provide necessary documentation related to the property and the trust.
  • Closing: The closing process, similar to a standard real estate transaction, will take place. The successor trustee will sign the necessary documents on behalf of the trust, and the sale proceeds will typically be directed to the trust’s accounts.
  • Distribution of Proceeds: After the sale is completed, the successor trustee will distribute the proceeds according to the terms of the trust document. This distribution may involve distributing funds to the trust beneficiaries or following specific instructions outlined in the trust.
  • Tax Considerations: Be aware of the tax implications of the sale, including potential capital gains taxes. In many cases, the property may receive a “step-up in basis” to its fair market value as of the grantor’s date of death, which can reduce the capital gains tax liability for beneficiaries.
  • Record the Sale: Ensure that the sale of the property is recorded with the appropriate county or city authorities to update the public record and reflect the change in ownership.

Read More: Don’t Put Your House In A Trust

What To Do With Proceeds From Sale Of House In Trust

When you have proceeds from the sale of a house held in a trust, what you do with the funds depends on the terms of the trust document. 

Carefully review the trust document to understand the grantor’s intentions regarding the distribution of proceeds from the sale of the house. 

The trust document should outline how the proceeds are to be distributed among the trust beneficiaries.

Let’s say the trust document specifies how the proceeds should be distributed among the beneficiaries.

The trustee will follow those instructions. 

This may involve dividing the proceeds in specific proportions among the named beneficiaries.

Keep accurate records of all financial transactions related to the trust.

This includes the sale of the house and the distribution of proceeds.

Proper record-keeping is essential for tax purposes and for maintaining transparency in trust administration.

Read More: Does Your House Have To Be Paid Off To Put It In A Trust

FAQs About If A Property Can It Be Sold If It Is In Trust

These are other questions clients ask us about property getting sold in a trust. 

Can A Trustee Sell Trust Property Without All Beneficiaries Approving?

Yes, a trustee can sell trust property without all beneficiaries approving

However, the trust document itself must allow this. 

The trust document typically outlines the powers and authority granted to the trustee. 

Let’s say the trust document explicitly gives the trustee the authority to sell trust property without requiring unanimous beneficiary approval.

Then, the trustee can generally proceed with the sale following the procedures specified in the trust.

In some cases, the trust document may require majority approval of the beneficiaries rather than unanimous consent. 

This means that a trustee can sell trust property if a majority of the beneficiaries agree to the sale.

If a beneficiary objects to the sale, their concerns may be addressed through legal channels. 

For example, contesting the sale in court. 

However, if the trustee is acting within the scope of their authority and following the trust document’s terms, the court may uphold the sale.

Read More: How Much Does It Cost To Put Your House In A Trust?

Can A Trustee Sell Trust Property To Himself?

Yes, a trustee can sell trust property to himself. 

However, it may not be a good idea.

And, you’ll likely have to get court approval.

Such a transaction may be seen as self-dealing. 

And that is a breach of the trustee’s fiduciary duty to act in the best interests of the trust and its beneficiaries.

The trust document may include provisions that explicitly allow the trustee to purchase trust assets under certain circumstances. 

Let’s say the trust document grants such authority and outlines the procedures for such a sale. 

Then it may be permissible for the trustee to sell trust property to himself. 

Even if the trust document does not explicitly permit the trustee to purchase trust property, a trustee can seek court approval for the sale to themselves. 

This often involves demonstrating that the sale is fair, reasonable, and in the best interests of the trust and its beneficiaries. 

Court oversight helps ensure transparency and fairness.

Read More: Does A Trustee Own The Property?

Can A Beneficiary Stop The Sale Of A Property?

Yes, a beneficiary can stop the sale of a property.

However, there may be limitations to when they have the power to stop the sale of a property. 

If the trust document gives the trustee the authority to sell trust property, then there is typically nothing the beneficiary can do to stop it. 

But let’s say a beneficiary wants to stop the sale of a property. 

Then the beneficiaries who object to the sale may seek court intervention to stop or challenge the sale. 

They would need to demonstrate to the court that:

  • the sale is not in the best interests of the trust 
  • the trustee is acting improperly

Read More: Can A Beneficiary Live In A Trust Property?

Can An Executor Sell Property To Himself?

Yes, an executor can sell the property to himself. 

However, an executor generally should not sell property from an estate to themselves. 

Before an executor can purchase estate property, they typically need legal approval. 

The court overseeing the estate administration may require a transparent and fair process, which often includes obtaining court approval for the sale.

The executor is required to disclose their interest in purchasing estate property to the court and all interested parties, including beneficiaries. 

This disclosure is essential to ensure transparency and allow beneficiaries to raise objections if they believe the sale is not in the best interests of the estate.

The property should be sold for a price that is similar to what an unrelated third party would pay for it. 

An independent appraisal may be necessary to determine fair market value.

The court may appoint an appraiser to assess the fairness of the sale and protect the interests of the estate and its beneficiaries.

Read More: Does The Beneficiary Own The Trust Property?

Get Help From A Trust Attorney

If you want help from a trust law firm, fill out the form below. 

At The Hive Law, we understand the importance of:

  • protecting your hard-earned assets 
  • ensuring your family’s future
  • not losing everything to creditors and lawsuits
  • properly (and legally) distributing assets 

We only accommodate a limited number of clients each month.

So don’t miss your opportunity to work with our trust fund lawyers.

Benefits of our trust services:

  • Tailored solutions to fit your unique needs and goals
  • Expert guidance in navigating complex tax and legal matters
  • Preservation of your wealth for future generations
  • Streamlined asset distribution according to your wishes

Avoid the pitfalls of inadequate estate planning strategies:

  • Creditors seizing your assets
  • Lawsuits jeopardizing your family’s financial security
  • Family disputes over inheritance
  • Costly and time-consuming probate processes

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