Selling a house is a pretty straightforward process and would usually not require any special processes. However, in certain cases, there may be factors that hinder a straightforward sale. These factors may necessitate certain special processes before the sale can go along, and one of these is if you are selling a house owned by a trust.
Selling a House Owned by a Trust
Selling a house in a trust is entirely not a big deal, however, one has to be careful and meticulous while carrying out such a task. There are different ways through which properties placed in a trust can be sold. It ranges from the selling of the property:
- By the owner
- By the trustee (with the permission of the beneficiary)
- By the beneficiary(ies)
Note that these apply when the property is in a revocable trust. Let us define a few terms before we go over the process of selling a house owned by a trust.
What Is a Trust?
A trust can easily be defined as a binding agreement that necessarily includes two or more parties. The person who has the original title to the house is regarded as the “owner” or the “grantor” and the person to whom the properties are bequeathed is termed the “beneficiary(ies).”
Sometimes, the beneficiary might not be of age to assume ownership of the properties. In such cases, a middleman termed (trustee) often manages the trust. There are a host of material things that a trust can accommodate, they include; houses, cars, and books.
The age of the control of trust depends on the owner of the properties and the principal purpose of a trust is to smoothly pass over properties to the beneficiary after the owner is deceased.
By the Owner of the Trust
The owner of a property placed in a trust can independently decide to dissolve the trust of their own volition and sell the property to interested buyers. They can choose to keep the proceeds of the business in a new trust or choose to not even form a new trust.
By the Trustee
The trustee, depending on the approval of both the owner and the beneficiary, can sell a house placed in a trust. One case where this won’t work is where it has been stipulated expressly by the owner that such a house or property must not be sold.
By the Beneficiary
The beneficiary can decide to sell a house passed to them through a trust so long as the trust does not contain a caveat barring them from doing so.
However, as with any other sale, you must pay capital gains tax in both cases. You may be eligible for a capital gains tax exemption depending on your circumstances. Given that you are looking to retain as much capital gains as possible, it is ideal to opt for a flat fee agency like CA Flat Fee.
You get comprehensive service including showing, marketing, and advisory roles, amongst others for a flat fee of $5,000 only. This way, you are guaranteed excellent realtor services as well as making significant capital gains.
Selling a House in an Irrevocable Trust
The sale of a house placed in an irrevocable trust is more complicated than a revocable trust. One of the reasons for this is that the trust of the deceased person is binding and cannot be changed or broken except where they are silent on some matters. The primary reason for creating some trusts by specific grantors is to preserve the property. In a case like this, you could either:
- Terminate the trust or reclaim the title to the property, then sell it on your own, or
- You can sell it through the trustee
However, both of these measures would necessitate the approval of the benefactor. Where an original property owner expressly places an embargo on the sale of a property, such properties cannot be sold. One of the reasons why trust creators make them is because they wish to pass certain properties in a form of generational inheritance.
This means that these properties would continue to be passed through ages until a high force like the law of the state, prevents its continuous passing.
Types of Trusts
Before selling a house owned by a trust, it is necessary to know what type of trust you are dealing with. Notably, there are two types of trusts:
- Revocable trust
- Irrevocable trust
Although both trust models have the same purposes, the modalities for operating them are pretty different.
A revocable trust is essentially a temporary trust. It’s a trust that can have its contents changed by either the owner, the trustee, or the beneficiary. However, the beneficiary has to consent to any change suggested by the trustee. These changes can range from:
- How the properties in the trust are to be divided
- The persons who are entitled to the trust
- The owner can revoke the trust in its entirety
A residence held in a revocable trust is liable to estate tax once the grantor dies, and creditors may sue the grantor and sell the properties in order to realize their money. A revocable trust comes with a lot of flexible options but offers little in the way of security.
Irrevocable trusts are trusts that offer a lot of security with quite limited options making them the direct opposite of revocable trusts. In an irrevocable trust model, the trustee can only make adjustments to the trust with the consent of the beneficiary and where there is no counter information about such corrections in the trust by the original owner.
The following apply to irrevocable trusts:
- When the owner of the property is deceased, the house would not be charged any estate tax
- In the event that the owner of the trust had creditors after death, the creditors do not have the power to sell properties in the trust in order to recoup their funds.
Why Are Houses Entrusted?
There are different reasons why people entrust their houses:
- To avoid the disturbance of creditors laying claim to their properties after their passing
- To bypass estate tax
- Trusts make probates unnecessary
Another reason why most people put their houses in trusts is for the avoidance of family conflicts. The trust is usually expressive and provides sufficient directive, hence there is often no need to contest rights to inheritance.
These are essentially the things you need to know when selling or attempting to sell a house in a trust. The awareness of the house’s type of trust and how properties in such trusts are to be sold would help you seamlessly sell your trusted properties. Also, you can always get a CA Flat Fee agent to guide you through the sale.