Imagine you don’t have an estate plan, like more than 55 percent of all individuals age 55 and older. You become incapacitated or even die. What happens to your house? If your family needs to sell it while you are alive, there are a bunch of legal hoops to jump through (even if you have a power of attorney) before the house can be sold. Once you die though, a power of attorney no longer has the authority to sell the house. In order to sell it, a probate is necessary in order to pass valid title to any new owner while paying any debts that may be owed.
While we all know that estate planning is something we should all do, the biggest reason is to make life easier for your family and loved ones should you become incapacitated or die. This particularly includes real estate. For mindful individuals who want the process to be simple and easy, many will set up a trust. Unfortunately, after you die, your loved ones may not appreciate the investment opportunity and wish to sell the property. Or, if you are incapacitated, they may need the money for your care, or maybe they just don’t have the ability to maintain the property if you are in a nursing home.
If the house is deeded to a trust, you will need to work with the trustee to sell it. The trustee is the only one with authority to sell the house. For the most part, selling a home held in a trust is not too different from selling a home that you own. The sale of an inherited house can be accomplished in two ways:
- The trustee sells the property and deposits the proceeds back into the trust, where they are managed and become part of the assets of the trust.
- The trustee transfers title of the property to your name, if you are the beneficiary of the trust, so you can then sell the property yourself.
Sell the Home with a Trustee
1) Verify the trustee has the authority in the trust provisions to sell the property. Usually, a provision granting the trustee the power to sell will be included in the trust document. If no power is granted, most courts will agree that the power is implied unless otherwise stated within the trust document.
2) Have the trustee hire a real estate agent who will market and list the home for sale. Again, the real estate agent will want to see the trust documents to confirm that the house in the trust can be sold and that the trustee is authorized to conduct the sale.
3) Provide proof to the title company that the trust is valid and that the trustee is identified as such by the trust document. In addition to the trust document, the title company may require a Certification of Trust signed by the trust attorney, a death certificate of the trust creator and a tax ID number for the trust.
4) After the closing, where the trustee must sign in their capacity in order to legally convey title of the property to the buyer, the funds from the sale become assets of the trust. The trustee may distribute the proceeds to you, if permissible under the terms of the trust, or manage the funds by leaving them in the trust for the long-term benefit of the named beneficiaries of the trust.
Selling the Home without a Trustee
1) Review all trust documents to ensure there are no provisions that exist to prevent the trustee from transferring title of the property to you as a beneficiary. If there is more than one beneficiary, then it is likely that the trustee must convey the property to all of the beneficiaries, who can then proceed with the sale. As long as no restrictions exist, the trustee has the discretionary power to transfer the asset to the beneficiary(s).
2) The trustee transfers the title of the home by having a new deed drafted and then executes and records it, just as if they were selling the property. While the trustee has the power to do so, the trustee is not required to transfer the property to the beneficiaries. It is up to the trustee to determine the best course of action for the Trust and also for the benefit of all beneficiaries of the Trust.
3) Once the house is in your name, you can sell the house with all of the proceeds from the sale going directly to you. If there is more than one beneficiary, all beneficiaries must agree to the sale and the list price. If only one wants to sell the property, then the others who own the property with them will have to buy out their share (unless the property can be partitioned so it is no longer jointly owned).
No matter who sells the house, the mortgage must be paid off. If there is a mortgage on the house when you die, it is unlikely that the trustee can allow you to sell the house because of the “due on sale” clause in the mortgage contract. But suffice it to say, when your property is in a trust, it is so much easier and quicker for your loved ones to liquidate the asset without a bunch of red tape and without any delay. Please note, this is very generalized information on how to sell inherited property titles in a Trust; however, you should consult your local real estate Attorney to make sure that your state’s laws and regulations are followed.
