There are advantages to putting a house in a trust. But what is the process for selling property in a trust?
Putting a house in a trust can provide tax benefits, save your children time and money on the probate process when that unfortunate time comes. It can also help you qualify for Medicaid in your old age. But it does make selling property in a trust a little more complicated. If you’re wondering, “Can you sell a house that is in a trust?”
The answer is yes but there are definitely more complexities than a traditional home sale. To start, you typically can, unless the trust documents prohibit selling the house. However, there are many factors on top of that. The home sale process varies with the type of trust, if the grantor is still alive, and who is the executor (i.e., who is selling the home). Here are all the important things to know when selling property in a trust. While it varies from state to state, the trust process is relatively similar everywhere.
What is a trust?
Trusts are used for various financial and tax purposes. Legally, trusts are defined as the following entities:
“A fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary.”
Essentially, a trust is established to protect certain assets during the estate planning process. Assets such as real estate, cash, life insurance, and the like are often included in a trust.
The following are common scenarios when selling property in a trust. We’ll go over your options in each scenario and the steps you’ll need to take to sell your home.
How to Sell a house in a revocable trust as the grantor
A revocable trust lets the grantor to alter or dissolve the trust at any time for any reason. You might have your house in a revocable trust in the event of your death, but instead to downsize to a remote cabin in the mountains somewhere. In this scenario, the grantor of a revocable trust, has two options for selling the house:
- Sell the home as the trustee. In this case, all the proceeds will remain in the trust
- Transfer the property out of the trust and to your name and sell it an individual.
Regardless of these two options, selling a house in a revocable trust is straightforward. If you sell the home as the Grantor or a trustee, you’ll need to verify the validity of the trust prior to sale. You can skip this step all together by transferring the home’s title to your name. In both cases, you’ll be able to claim the capital gains exclusion assuming you are eligible.
While a revocable trust makes it easy to sell a house, it has its fair share of downsides downsides: It doesn’t protect you from estate taxes at the time of your passing, nor does it protect your home from creditors. This can be a dealbreaker depending on your situation.
Selling a house in an irrevocable trust
The grantor of an irrevocable trust has less control over the trust’s assets. With that said, it allows said assets to be removed from the Grantor’s taxable estate. Because of this, an irrevocable trust can’t be altered or dissolved without the consent of the beneficiaries. You have two main options if you are selling a house in an irrevocable trust:
- You can break and dissolve the trust in agreement with the beneficiaries
- Keep the trust intact and sell the home through the trust
Breaking the trust will transfer the title back to the Grantor. Those assets will also be newly subjected to estate taxes. If you sell your house through your trust, you will have to work with the other trustees.
- Review the trust documents and confirm the trustee has the power to sell the home
- Have the trustee hire a real estate agent or sell the home off market
- Prove the validity of the trust to the title company. You will need to provide the Certification of Trust, the grantor’s death certificate, and a tax ID number
- Have the trustee/s sign the final purchase agreement with the home buyer
- After the final sale, earnings from the sale go back into the trust and the trust pays capital gains tax
See also: Should you sell your house in 2022?
Selling a house inherited in a trust
In the event of the death of the Grantor, the trust automatically becomes irrevocable. The trustee then must dissolve the trust’s assets and distribute them to the named beneficiaries. You’ll likely want to hire an estate attorney to draft a Trustee’s Deed, which transfers ownership out of the trust and into the hands of the beneficiaries. So if you inherited a house that was in a trust, it’s yours to hold or sell.
More often than not, there are certain situations that arise that motivate trustees to sell their inherited house. There may be multiple children inheriting the house or no named beneficiary. In this case, the trustee can sell the house using the steps listed above and distribute the assets. Most families find this much less messy and stressful.
Upon transfer, the tax basis for the home is updated. This allows the trustees to avoid capital gains taxes if the house is sold immediately after it is inherited.
The tax implications of selling property in a trust can be complicated, and every trust is constructed a little differently. It is highly recommended you seek legal help whenever you find yourself in these situations.
Selling an inherited house fast
After inheriting a house, the hard work has just begun. You’ll need to prepare the house for sale, market the home, host open houses, field offers from buyers, and handle repairs and negotiations. This is at the very least time consuming but can be unbelievably stressful depending on your comfort with the home selling process. Most people understandably do not want to deal with this stress especially when dealing with death of a loved one.
Most times, inherited homes need to be sold pretty quickly, and often require extensive repairs and updates. For this reason, trustees can really benefit from fielding an all-cash offer for their house.
Working with a local cash buyer in San Diego helps you sell your house fast and avoid the repairs. You still get to skip the stress of selling the inherited property yourself while also not paying 6% commission to a realtor.
Interested in learning more? Contact a local team of cash offer experts to see what your house may be worth!