Putting a house in a trust has many benefits, including tax relief and protection from creditors.
The trust’s main aim is to smoothen the transfer of assets to beneficiaries after the grantor’s passing by avoiding a probate process that can be marred with contests and confusion. It is a way of planning your estate in advance.
Ironically, once the trust is established, a feeling of losing control over your property can creep in. You start wondering what will happen if you change your mind – whether you can sell a house in a trust, and what are the implications? Stick around for the answers to these questions and more.
If you are wondering, yes, you can sell a house in a trust, provided there is no clause in the trust document prohibiting such a transaction. Selling real property that is part of a trust can get complicated, though.
The nature of the trust and the parties involved make each sale unique in its procedures and requirements. We will help you get a handle on the process so that your moves are informed, legal and beneficial.
The grantor has a wide leeway to manage assets held in trust when it’s a revocable trust. They can change or revoke the trust as they wish. As a grantor of a revocable trust, you can sell a house as the trustee and let the proceeds remain in the trust or transfer the house’s title to your name before selling it as an individual.
The price of this flexibility is that a revocable trust does not protect the property owner from creditors, and the house will not be exempt from estate taxes upon your passing.
If the house is in an irrevocable trust, on the other hand, the terms of the trust can not be altered, nor can it be dissolved without the beneficiaries’ consent, even by the grantor.
Your options as the grantor will be to seek the beneficiaries’ permission to break the trust so you can take back the title and sell the house as your own or keep the trust intact and sell the home with the trustee’s help.
This is only possible if there is no clause in the trust prohibiting the sale of the house. The proceeds from the sale when the trust is intact are remitted to the trust.
Besides honoring the grantor’s request with permission from the beneficiaries, there are other circumstances where the trustee will be the one selling the house.
When a grantor dies, for instance, the trustee assumes the responsibility of distributing the assets in the trust to its named beneficiaries.
Even a revocable trust will become irrevocable the moment the grantor passes on. A trustee’s deed is executed, transferring the ownership of the house from the trust to its beneficial interest.
Suppose the property in question has multiple beneficiaries (say siblings), or it has no named beneficiary. In that case, it will make sense for the trustee to sell the house and distribute the proceeds to the beneficiaries (if the trust allows the sale).
The trust beneficiary can sell the house as soon as its ownership is transferred to them from the trust, provided the trust doesn’t have limitations.
If you sell the house immediately after inheritance, you are exempt from capital gain taxes after the real estate transaction. This is because the house’s tax basis will only be stepped up to fair market value when the grantor passes on.
A change in circumstances might have you reconsidering the decision to place the house in a trust. You may need the funds for a better project that you feel will be worth more to your heirs.
Occasionally, hate crimes and insecurity become rampant where the house is located. Selling the house becomes a better option than holding it in a trust deed.
When the trust has more than one trust beneficiary, the assets have not been allocated to individuals, and the property is not divisible, it makes sense to liquidate the assets to facilitate distribution.
Besides sentimental value, there is no need to hold on to a house you know you will not live in. It exposes you to tax burdens, maintenance costs, and other fees without adding tangible value to your life.
Selling the house will transfer these burdens to the cash buyer, and the proceeds can even be used to improve your current home and raise its market value.
Each trust is different and will operate according to the conditions set out in the deed. Start by checking the terms and conditions as laid out in the trust document to ascertain whether or not the assets in the trust can be sold and who can sell them.
Some trusts completely bar the sale of assets. Review your resources and mental capacity before considering the following options.
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This approach enables you to get the most out of the sale proceeds because you don’t engage a realtor who has to be paid.
Unfortunately, if the buyer has an agent, their commission is still deducted from the sale proceeds, and you should oblige them; otherwise, they will divert their clients from your house.
A lot of work goes into closing a house sale. The house needs to be staged before listing and marketing when putting it up for sale.
As these activities are not draining enough, you should also field the buyers’ offers and host open houses. This can be overwhelming, especially if you just came up on the inheritance and are still dealing with losing a loved one.
To avoid the burden of the sale, you can engage a real estate agent to handle it as they already have a market feel. They will know the right price to quote and are familiar with the process. They will get you the best possible offer for the house and facilitate the entire process.
These services don’t come without their costs. The combined commission for your listing agent and the buyer’s agent will be between five and six percent of the selling price. It is usually deducted from the sale proceeds, and the seller foots the bill.
The other reason you might hesitate to engage a real estate agent is that the sale will go through the standard process, which usually takes about three weeks or longer, which you may not have.
If you want to close the sale in the shortest period without having to endure the rigors of a standard listing process, you can consider asking for offers from established cash buyers who are always ready to take the property off your hands.
They will give their offer as soon as you furnish them with the house’s information, and they buy the house as is, so you don’t need to undertake costly or lengthy repairs to stage the house. The sale process is much faster, and you can avoid costs like agent commissions.
The downside of selling to a cash buyer is their offer will likely be lower than the market rate because they buy houses intending to flip them. They need reasonable margins to justify the purchase.
There is no universally recommended way to sell a house in trust. Your priorities will dictate the best approach when you get to the point of selling it.
You can sell a house in an irrevocable trust, provided there are no clauses in the trust prohibiting the sale of the house.
Yes, you can sell a house with a deed of trust. The deed of trust acts as security for the lender who financed your property purchase.
A trustee holds onto the property’s title until the mortgage loan is fully settled before it is transferred to you.
You need approval from the lender if you sell the house for less than what you still owe to make arrangements on how you will pay the difference.
The trustee will use the proceeds from the sale to pay whatever is outstanding from the loan to the lender. If the loan is settled in full, the trustee will facilitate the transfer of the legal title to the new property owner.
All excess proceeds are given to the borrower (who will be the seller in this instance).
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