When it comes to selling a parents house before death, that’s a whole process to go through. After a loved one passes away, who takes over the house upkeep and arranges its sale? Can siblings force the sale of inherited property? If the property was put into the trust, then grieving beneficiaries can step aside—the trustee is in place to handle this process.
Property sales can take months and include a lengthy to-do checklist, and there are extra steps to selling a house in a trust after death. Let’s take a closer look at how to proceed.
What Is a Trust?
A trust is a legal entity required to file taxes. Its function is to hold and manage private assets that are passed on to beneficiaries.
There are three roles in a trust arrangement:
- Grantor – The original owner of the assets who sets up the trust is called the trust grantor, settlor, or owner.
- Trustee – A trustee is the manager of the trust with the legal right and fiduciary responsibility to act in the best interest of the beneficiary and comply with the grantor’s wishes as expressed in the trust.1 The trustee is responsible for paying taxes, managing assets, and keeping records. They can either be a reliable individual or a corporation. Also, while living, the grantor can designate themselves as the trustee.
- Beneficiary – Beneficiaries are future or ongoing recipients of the trust’s assets or income. A trust may come with more requirements and limits than a standard inheritance, gift, or loan, such as reaching a certain age or receiving periodic amounts over time.
What Are the Types of Trusts?
There are two key factors in defining types of trusts: whether it’s set in stone vs. changeable, and whether the original owner of the assets (the grantor) in the trust is living.
Changeability is reflected by one of two terms:
- Revocable – The revocable trust is a popular estate planning tool that allows the grantor to maintain control over the trust assets. Revocable trusts can be easily modified or dissolved by the grantor.
- Irrevocable – The irrevocable trust is effectively static (though if a change or dissolution is critical, it may be possible via court order or similar process depending on state law). Note, a revocable trust automatically becomes irrevocable upon the death of the grantor. This type of trust is often used for estate tax planning and asset protection.
The second status speaks to whether the grantor is living while the trust is in effect:
- Living (or intervivos) – The trust becomes effective during the life of the grantor.
- Testamentary – The trust is activated only upon the grantor’s death.
How to Sell a House in a Trust After Death
A house held in a trust requires a few extra steps to list it and close on a sale.
#1 Review the Trust
Before anything else, review the trust document language in detail and ensure you move forward in accordance with it. A trust agreement may simply name assets and beneficiaries, but it can also include detailed instructions such as whether you’re required to engage a realtor or gain approval from beneficiaries. It can specify the powers and duties of the trustee, including the authority to sell real estate.
#2 Consult an Attorney
Some states require the presence of a lawyer during the closing, but as a trustee, it’s wise to consult with one to ensure you’re following the trust guidelines and state law. Secure an attorney with experience in both real estate and trust law to review:
- The trust requirements and language related to a sale
- Offers from potential buyers
- The sale agreement
- Closing documents
#3 Be Transparent and Keep Pristine Records
Although trustees can often list and sell property they manage with no notice to or permission from beneficiaries, it’s unwise to do so. Being clear and upfront about your actions as a trustee allows the opportunity:
- To review valid concerns
- For trust beneficiaries or other family members to request items with sentimental value
- To reduce the chance of legal action from disgruntled beneficiaries
Log your actions and maintain files of all pertinent correspondence, forms, and documents throughout the home sale process. This will help keep beneficiaries up to date and also provide legal protection for the trustee. This can include obtaining a copy of the death certificate, legal and financial documents for the property, etc.
#4 Cover the Bills
Even with a fast sale, you’ll need to arrange to either continue or close accounts and service providers related to property upkeep. Look for records or online accounts for:
- Mortgage, home equity loan, or HELOC debt
- Property tax
- Electric, gas, water, and sanitation
- Homeowners association (HOA) fees
- Cable, internet, landline, and mobile phones
- House cleaning and lawn care
#5 Secure the Property
A vacant house can be an invitation for trouble. Steps to reduce the chance of break-ins and property damage include:
- Remove or lock away valuable items and important documents
- Have mail held, forwarded, or pick it up regularly
- Change the door locks and lock all doors and windows
- Install security cameras with motion detection and recording
#6 Check Insurance Coverage
Contact the insurance company to ask whether the current homeowner’s insurance will cover damage from break-ins and vandalism during the time prior to a sale. If not, you may need to switch to or add a vacant home policy.
#7 Secure a Realtor
Choose a local real estate agent with experience selling properties held in trust. You’ll need to show the trust documents to establish your authority to sell the property. Selling a house without a realtor is possible, if this is a route you’d prefer to take.
#8 Clarify the Title
Complete a title search to ensure the property is free of debts, liens, and judgments against it that need to be cleared or challenged prior to a sale. This can be done through a lawyer or realtor. You can also look up county guidelines to guide you through the process on your own.
#9 To Fix or Not to Fix
As a trustee, you have a duty to maximize profit, but you’ll need to weigh multiple factors to plan the best outcome. One of these is whether to invest money and time in fixing up and staging the property before a sale—and how much.
For a traditional sale, it will likely be worth it to invest in minor repairs and cosmetic upgrades. If the house is in significant disrepair, a fast-turn, as-is sale may be the best call.
#10 Determine Market Value and Price the Property
To find the current market value of your home, there are three progressively more accurate methods:
- Free online market valuation calculator
- Comparative market analysis (CMA) from a real estate agent
- A formal appraisal from a licensed appraiser
The price tag might equal what you get back from the appraiser, or it may need some adjustment. If you work with a realtor, they’ll be a partner in determining a price that takes your timing and profit goals, micro-level real estate market issues, and seasonality in mind.
#11 Prepare the Property
Before any open house, there’s a list of chores that need to be done. Enlist professionals or beneficiaries to:
- Distribute furniture and belongings as designated in the trust
- Clear the remaining clutter through an estate sale, donations, and discards
- Deep clean the home from top to bottom
- Stage the home
- Detail the lawn and gardens
#12 Lock Down the Buyer
Your realtor will list, market, and show the property to potential buyers. A buyer will submit an offer, which you can accept, reject, or counter. If the negotiation moves forward, it typically includes:
- A buyer’s inspection
- Post-inspection request for repairs, allowances, or a price adjustment
- An appraisal by the buyer’s lender
A sale agreement should be reviewed by an attorney to ensure it complies with the terms of the trust.2 Once all parties are in agreement, the final walkthrough and closing are scheduled.
#13 Close the Sale
At closing, the trustee signs the property over to the buyer with a deed or quitclaim form and takes possession of the payment. The trustee then files paperwork with the court to verify:
- The sale of the property
- The placement of the sale proceeds into the trust.
If the trustee is also designated as executor of the estate, they may need to obtain a court order before the property sale.3
#14 Address the Beneficiaries
The trustee prepares and supplies a written record of the sale to the beneficiaries. Sale proceeds can either be kept in the trust or distributed to the beneficiaries, in accordance with the trust.
#15 File Form 1041 and Pay Taxes Due
File Form 1041, Income Tax Return for Estates and Trusts, with the IRS and include details of the sale, including gains, losses, and associated costs. Pay taxes if necessary. Depending on the trust terms and distribution of sale proceeds, taxes on the sale could be owed by either the beneficiaries or the trust itself.
Utilizing a Sale-Leaseback
Residential sale-leaseback programs combine the sale of a property with a lease and contract that ensures you can stay in your home as long as you choose as a renter. Rather than the commissions, time, and work of listing and marketing a home to individual buyers, you sell directly to an investor-landlord.
For the grantors of a living trust, this can mean:
- Converting trust property to cash to invest the proceeds back into the trust
- Freeing the family from the cost and worry of covered repairs and maintenance
- No more property tax or homeowner’s insurance payments
- Releasing beneficiaries from the time and effort involved in a home sale
Learn more about the sale-leaseback benefits and determine if this is the right option for you.
Trustees are the legal title holder to property held in a trust, and as such, can initiate and complete a home sale. There are extra steps to take when selling a home held in a trust following the grantor’s death, including working with an attorney and keeping beneficiaries informed throughout the process.
Trustees have a fiduciary duty to act in the trust’s best interest, maximize profit, and avoid waste. Decisions surrounding sale options and pre-sale home improvements and maintenance must adhere to that duty.
To offload the responsibility of homeownership for living trust grantors, and the challenge of a post-death real estate sale for beneficiaries, consider a sale-leaseback.
- RMO, LLP. Can a Trustee Sell Property Without All Beneficiaries Approving? https://rmolawyers.com/can-a-trustee-sell-property-without-all-beneficiaries-approving/
- Bochnewich Law Offices. How Do You Sell a House in A Trust? https://www.btrustlaw.com/blog/how-do-you-sell-a-house-in-a-trust/
- HomeLight. How to Sell a House Held in an Irrevocable Trust. https://www.homelight.com/blog/selling-a-house-in-an-irrevocable-trust/