Whether you own a palatial estate in sunny Palm Beach or a ranch-style house in Des Moines, holding the property in a trust comes with numerous benefits.
But what happens if you want to sell the property? Just thinking about all the real estate and tax jargon is enough to make your head spin.
Fortunately, we’re here to give you the lowdown on selling a house in a trust. By following the steps below, you’ll be able to sell your trust-held house with confidence and clarity. Trust us.
Step 1: Know the Trust Type
If knowledge is power, knowing the type of trust in which the property is placed will give you the power to get the best deal for your property.
But before diving into the two land trust types, let’s define what a trust is.
In short, a trust is a type of legal arrangement in which a grantor places property, money, and other assets into an account to give to the trust’s beneficiaries upon the grantor’s death.
While trusts are similar to wills in this regard, trusts differ in the following ways:
- Trusts allow you to avoid probate – If a person leaves a will after they die, everything passed on per the document is subject to probate. Probate involves the public seeing the value of everything in the estate. The assets placed in a trust aren’t subject to this public scrutiny, however.
- Trusts can give further instructions – While a will functions like a playbill in that it simply tells beneficiaries who’s who when dividing assets, a trust is more like a complete play with stage directions. It can give beneficiaries detailed instructions about how, when, and under what conditions they can receive their assets.
If you find yourself wondering about the process of selling inherited property compared to selling properties held in trust, we’ve got you covered here as well.
Now that you know what a trust is, let’s explore the two types of trust and how they affect the real estate process.
The most grantor-friendly trust type, revocable trusts, can be revoked or amended at any time up until the grantor’s death. As a result, revocable trusts are often called “living trusts.”
Placing your property in a revocable trust comes with a host of benefits, including:1
- Complete control over your assets
- The ability to dissolve or change the trust at any time
- Ease of selling your trust property
The ability to manage your trust assets without input from your beneficiaries makes it fairly straightforward to sell your home held in a revocable trust.
How To Sell a Property in a Revocable Trust
There are two ways to sell a property held in a revocable trust:
- Transfer the inherited property title to yourself – In a revocable trust, you can function as the trustee. This means you have complete control of moving assets in and out of the trust—including property titles. To move a property title out of the living trust, simply draft a new deed placing the title in your name. Then, sell the property as a normal real estate transaction.
- Sell as the trustee and keep the funds in the trust – If you still want to keep the proceeds from the property sale in the trust, you can simply sell the home as the trustee and keep the funds in the trust. This method is valuable if the property is the only asset in the trust and you want to keep the trust intact.
Although revocable trusts still allow you to be taxed for your property, these types of trusts offer the advantage of ease when it comes to selling property held in trust.
Things get a bit more complicated if your property is held in an irrevocable trust. That’s because an irrevocable trust takes ownership of the trust’s assets out of the grantor’s hands and gives it to an appointed trustee.
In other words, you don’t technically own the property in a trust and, therefore, cannot sell the property unless the trust’s beneficiaries agree to a sale.
How To Sell a Property Held in an Irrevocable Trust
Among the many home selling options, selling property in an irrevocable trust is more complex than it would be if the property were held in a revocable trust.
The easiest way to sell the property is to get the trust’s beneficiaries to allow you to sell the property. Once they grant you permission, you can simply transfer the property’s title to your name.
You can also sell the home without dissolving the irrevocable trust. To do so, you’ll need to take the following steps:
- Review the trust’s rules and regulations. Some trusts allow the trustee to sell the property, others do not. The last thing you want is your trustee to face legal issues because of a violation of the trust’s stipulations.
- Direct the trustee to sell the house on the market or have the trustee sell the property themself.
- Once the property is sold, review the trust’s stipulations to see if the funds from the sale go directly to the beneficiaries. You’ll also need to note the taxes the trust will pay from the sale.
Knowing the type of trust you’re working with is important because it dictates how you can sell the property. Once you know the specifics of your trust, you can move on to the second step: reviewing your state’s trust and deed laws.
Step 2: Review Your State’s Trust Laws
Although most states have similar laws on the books when it comes to selling properties held in irrevocable trusts, some states are outliers.
Knowing your state’s trust laws like the back of your hand is thus the safest way to ensure your property sale goes as smoothly as possible.
When reviewing your state’s trust laws, pay special attention to the following:2
- Consent modification laws – Many states have laws regarding the changing of irrevocable trusts. In most cases, these laws require that the trust’s beneficiaries agree to changes in the trust’s terms. That said, some states like Arizona and Massachusetts go the extra mile by requiring a court order in addition to beneficiary consent.
- Non-judicial settlement agreements – A non-judicial settlement agreement (NJSA) allows all parties in a trust to settle disputes without the court’s interference. In other words, an NJSA functions as an alternative to court arbitration. States that use NJSA to settle trust disputes include Florida and Illinois.
It’s also essential to hold a firm grasp on your state’s trust tax laws. If you are wondering, “Do you pay capital gains on inherited property?”, the answer is a resounding yes. You or your beneficiaries will likely be required to pay a capital gains tax following the sale of the house. You may also be on the hook for several forms, including Form 1041 and K-1.3
Step 3: Determine If You’ll Hire a Real Estate Agent
Hiring a real estate agent to help sell your trust-held property can pay dividends when it comes to ease and profitability.
That said, you don’t need to hire a real estate agent to sell a home held in a trust. If the home was in a revocable trust before you placed the property in your name, you can simply sell the home on your own.
Conversely, if the home was in an irrevocable trust, you can encourage the trustee to sell the home without a real estate agent.
Let’s look at the pros and cons of selling a trust-held house with a real estate agent.
When deciding whether or not to enlist the help of a real estate agent, consider the following advantages:2
- Simplifies the process – From tax laws to NJSAs, trust decisions involve a lot of details and potential complexities. Real estate agents specializing in trust-held property transactions can help simplify the process, allowing you to think about your future beach condo—not your current trust situation.
- Provides more connections – Real estate agents specialize in finding buyers for properties. As a result, they can help you connect with more potential buyers. They can tap into more networks to speed up the sale of your property.
Although selling your trust-held property with the help of a real estate agent comes with a few distinct advantages, there are also a few key disadvantages. These include:
- Commission and other fees – If you hire a realtor, you’ll have to pay commission and realtor fees. As a result, your total profit from the sale could be thousands of dollars higher if you forgo a realtor’s help.
- Loss of total control – Working with a realtor means the realtor will have a good deal of input when it comes to selling your home. If you want to retain full control over the sale, you may want to consider selling the home on your own.
Additionally, some realtors may not have you and your beneficiaries’ interests at heart. They could simply be looking to make a quick buck off your home.
Want to know who does have your best interests at heart? An off-market buyer who’ll give you top-dollar for your home and split any profits with you after the sale. Talk about trust-worthy.
FlipSplit: The Trusted Way to Sell Your Home
Although selling your trust-held property seems like a lot of work, the process is fairly straightforward once you know the right steps to take.
Even better news? FlipSplit is here to make that process even easier.
A leader in ensuring homeowners earn the true value of their homes, FlipSplit makes it possible to sell your trust-held home without having to pay for renovations and realtors. In fact, any extra profits from the sale will be split with you.
Welcome to FlipSplit, where we buy houses. Let’s work together to sell your trust-held home.
- Investopedia. Revocable Trust. https://www.investopedia.com/video/play/revocable-trust/
- Clever. What to Know About Selling a House in an Irrevocable Trust. https://listwithclever.com/real-estate-blog/selling-a-house-in-an-irrevocable-trust/
- Investopedia. Do Trust Beneficiaries Pay Taxes? https://www.investopedia.com/ask/answers/101915/do-beneficiaries-trust-pay-taxes.asp