Can You Sell a House that Is in a Trust?
There are advantages to putting a house in a trust. But can you sell a house that is in a trust?
Putting a house in a trust can provide tax benefits, save your children time and money on the probate process, and help you qualify for Medicaid in your old age. But it does make selling that property a little more complicated. If you’re wondering, “Can you sell a house that is in a trust?”
The short answer is yes. You typically can, unless the trust documents preclude the sale. However, there are many factors to consider. The process depends on the type of trust, whether the grantor is still living, and who is selling the home. This article will show you the ins-and-outs of selling a home that’s in a trust.
What is a trust?
Trusts are used for a variety of purposes and in many circumstances. Investopedia defines it as follows:
“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 in which a person may want to sell a house in a trust. We’ll go over your options in each scenario and the steps you’ll need to take to sell your home.
Selling a house in a revocable trust as the grantor
A revocable trust allows the grantor to make changes or dissolve the trust at any time. Perhaps you put your house in a revocable trust in case of your death, but now you’d like to downsize to a condo on the beach. If you’re the grantor of a revocable trust, you have two options for selling your house:
- Sell the home as the trustee and keep proceeds in the trust
- Transfer the title of the property to your name and sell it as your own
In either case, selling a house in a revocable trust is very straightforward. If you sell the home as the trustee, you’ll just need to verify the validity of the trust with the title company prior to sale. If you transfer the title to your name first, you can eliminate that step. You’ll be able to claim the capital gains exclusion either way, assuming you are eligible.
Related: What Expenses Can You Deduct When Selling a Home?
While a revocable trust makes it easy to sell a house, it comes with some downsides: It doesn’t exempt your home from estate taxes at the time of your passing, nor does it protect your home from creditors.
Selling a house in an irrevocable trust as the grantor
You may have chosen to put your house in an irrevocable trust, either for the tax benefits or to exclude the house from your assets when qualifying for Medicaid. An irrevocable trust can’t be altered or dissolved without the consent of the beneficiaries. If your home is in an irrevocable trust, you have two options should you decide to sell:
- Break the trust with permission from the beneficiaries
- Keep the trust intact and sell the home
If you break the trust, you can take back the title and sell the house as your own. If you keep the trust intact, you’ll need to sell the home with the trustee. Here’s how:
- Review the trust documents to make sure 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 by providing the Certification of Trust, the grantor’s death certificate, and a tax ID number
- Have the trustee sign the purchase agreement with the buyer
- Earnings from the sale go back into the trust and the trust pays capital gains tax
See also: What is a Deed of Trust?
Selling a house inherited in a trust
Whether the house was in a revocable or irrevocable trust before the grantor’s passing, the trust becomes irrevocable at the time of the grantor’s death. At this time, the trustee is responsible for distributing the assets in the trust to the named beneficiaries. They’ll typically hire an attorney to write up a Trustee’s Deed, which transfers ownership out of the trust and into the hands of the beneficiary. So if you inherited a house that was in a trust, it’s likely that it’s now yours to sell.
However, there are some instances when it makes sense for the trustee to sell the house. For example, 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.
Keep in mind that in either instance, the tax basis of the home is stepped up to fair market value at the time of the grantor’s death. That means that you won’t pay capital gains taxes if you sell the house immediately after you inherit it.
The tax implications of selling a house in a trust can be complicated, and every trust is constructed a little differently. Don’t hesitate to seek legal help if you have questions or concerns.
Selling an inherited house fast
Whether you now hold the title or are working with the trustee to sell the house, you’ll need to prepare the house for sale, market the home, host open houses, and field offers from buyers. All of this can be time-consuming and frustrating during a time when you’re dealing with the death of a loved one. Not to mention, you’ll be on the hook for costly real estate commission fees and closing costs.
If you want to sell the house fast, consider requesting an offer from Sundae’s marketplace. We help sellers sell fast in any condition by connecting them with qualified investors. When you sell with us, you can expect full transparency throughout the process.
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