Imagine this: Your parents placed their home into a trust years ago for estate planning purposes. Now you’re the trustee, and you’re wondering, can you sell a house in a trust? The answer is yes, but with important caveats that depend on the type of trust and your legal role.
Whether you’re dealing with a revocable trust that your parents set up before passing or facing the complexities of an irrevocable trust, understanding your rights and responsibilities is key. In this post, we’ll walk you through everything you need to know, from how to sell a house in an irrevocable trust, to whether you can sell and reinvest the proceeds into another home.
Understanding Revocable vs. Irrevocable Trusts
Before selling a house held in a trust, it’s important to know which type of trust you’re dealing with, revocable or irrevocable. These two structures differ greatly in terms of control, flexibility, and legal authority. Understanding the key differences can help you navigate the sale process with fewer surprises.
Revocable Trust (Living Trust)
A revocable trust is flexible and can be modified or revoked at any time by the person who created it (the grantor), as long as they are alive and mentally competent. In most cases, the grantor also serves as the trustee and the primary beneficiary during their lifetime. This means:
- Selling a Property: If the grantor is still alive, they can usually sell the property in the trust without much complication. The title is technically in the name of the trust, but the grantor maintains control.
- Authority to Sell: The trustee (often the grantor) has the legal authority to sell the home. If the grantor has passed away, the successor trustee named in the trust can proceed with the sale.
- Probate Avoidance: One major benefit is that a revocable trust avoids probate, allowing a quicker and more private sale after the grantor’s death.
Irrevocable Trust
An irrevocable trust, on the other hand, cannot be altered or revoked once it has been created (except under very specific circumstances). The grantor gives up ownership and control of the assets in the trust, which are now managed by an appointed trustee for the benefit of the named beneficiaries. Selling a home in an irrevocable trust is more complex:
- Limited Flexibility: Because the trust terms are fixed, the trustee’s ability to sell the home may be restricted by language in the trust document.
- Permission Required: The trustee may need the written consent of all beneficiaries or court approval, depending on the terms of the trust.
- Tax Implications: The sale of a home from an irrevocable trust can have different tax consequences, especially regarding capital gains and step-up in basis.
How to Sell a House in an Irrevocable Trust?
Selling a house that’s locked inside an irrevocable trust requires careful legal and administrative steps. Here’s how the process works:
Step 1: Identify the Trustee
The trustee is the person or institution designated to manage the trust’s assets. The trustee is the only one who can legally sell the property, even if you’re a beneficiary or the original owner.
Step 2: Review the Trust Agreement
The trustee must carefully review the trust document to:
- Verify whether they have the power to sell.
- Determine if court approval or beneficiary consent is needed.
- Understand how sale proceeds must be handled.
Step 3: Hire Legal Counsel
Irrevocable trusts come with fiduciary duties. Trustees are legally required to act in the best interests of the beneficiaries. Missteps like selling without proper authority, can lead to lawsuits or tax issues. A qualified estate or trust attorney ensures the sale is lawful and compliant.
Step 4: Property Valuation and Sale
The home should be appraised to determine fair market value. Once that’s done, the trustee can:
- List the property for sale with a realtor, or
- Sell directly to a home buyer or investor
Step 5: Manage the Proceeds
After closing, the funds don’t go to the trustee or beneficiaries (unless the trust allows distributions). The money typically stays in the trust and is managed or reinvested according to the trust’s instructions.
Can You Sell a House in an Irrevocable Trust and Buy Another House?
Yes, you can but there are rules. A trustee can sell a house held in an irrevocable trust and use the proceeds to buy another property, as long as the trust document allows it, the purchase serves the trust’s purpose, and the trustee acts in the best interest of the beneficiaries.
For example, if a trust was created to provide housing for a disabled family member, the trustee might sell a large home and use the funds to buy a smaller, more accessible one. The new property must stay in the trust’s name, and all income or expenses tied to it must be managed through the trust. To avoid legal or tax issues, it’s always smart to get guidance from a trust attorney or estate planner.
“If My House Is in a Trust, Can I Sell It Myself?”
This is one of the most frequent (and confusing) questions people ask. The answer is: only if you are the trustee and have been granted the power to sell in the trust document.
Scenarios:
- You’re the Grantor and Trustee of a Revocable Trust
You retain full control over the trust assets. You can sell the house like any other property you own. - You’re a Beneficiary of an Irrevocable Trust
You have no authority to sell. Only the designated trustee can.
What You Should Do:
- Contact the attorney who drafted the trust if needed
- Locate the trust documents
- Verify the trustee designation
- Look for a “Power of Sale” clause
Final Thoughts
Selling a house that’s in a trust might seem confusing at first but it doesn’t have to stay that way. Once you know what kind of trust you’re dealing with and who has the legal right to make decisions, things start to make more sense.
If you’re a trustee, take the time to read the trust documents carefully. If you’re a beneficiary, remember that only the trustee can sell the home and only if the trust allows it. Every trust is a little different, so understanding the rules is key.
It’s okay to feel unsure in the beginning. Trusts can be full of legal terms and fine print, but you don’t have to figure it all out on your own or overnight. Step by step, with the right help and clear information, you can make confident choices that honor the trust and the people it was created for.
Frequently Asked Questions
Can you sell a house in a trust?
Yes. If you’re the trustee and the trust grants authority, you can sell the property. Revocable trusts are easier to work with; irrevocable trusts require more legal precision.
Can you sell a house in an irrevocable trust?
Yes, but only the trustee can do so. The trust must explicitly allow the sale, and all actions must align with the trustee’s fiduciary duties.
Can you sell a house in an irrevocable trust and buy another house?
Yes, if the trust permits. The trustee can reinvest the proceeds into a new property, but the new home must be titled under the trust and used for the benefit of the beneficiaries.
If my house is in a trust can I sell it?
Only if you are the trustee and have been given the power to sell. Beneficiaries or heirs must defer to the trustee’s authority.
Can beneficiaries stop a trustee from selling the house?
Only if the trustee violates the trust terms or acts against the beneficiaries’ interests. In such cases, they can petition the court to intervene.