Selling A Property Titled In A Trust
There are a number of reasons why a property owner might put their house in a trust, including tax benefits, saving heirs time and money on the probate process, and making the Medicaid qualification process easier. Having a home titled in a trust also makes the selling of that home a little more complicated, not impossible – just complicated.
It’s important to work with an experienced title company, like Ohio Real Title, for these types of transactions to minimize errors or unneeded requests due to lack of knowledge and experience with trusts.
What is a trust?
First, we need to understand what exactly a trust is. It is a legal arrangement created during a person’s lifetime for managing their assets for the benefit of another person – the beneficiary. A trust is a separate legal entity from the person who owns it.
A trust can include assets such as vehicles, bank accounts, stocks, valuable personal items, etc., and, of course, real estate property. A trust is usually managed by a third person called a trustee, but the grantor can also designate themselves as the trustee.
Why put assets into a trust?
A trust is meant to enable an easy transfer of the assets to the beneficiary after the creator’s passing, bypassing the probate process. It is the responsibility of the trustee to manage the trust in the best interest of the beneficiaries and in accordance with the guidelines that the grantor set when the trust was created.
Because a trust cannot be contested and bypasses the probate process, people choose it as the means to divide their assets after they are deceased. Depending on the type of trust established, it can also help to avoid the estate tax and protection from creditors.
Selling your home held in a trust
There are two types of trusts and they determine how selling property held the trust is done:
Revocable Trust
A revocable trust – also known as a living trust – is a trust in which the terms can be changed and modified by the grantor after its creation. This can include adding or removing beneficiaries or changing how the assets held in the trust should be managed.
Selling a property in a trust that is revocable is very straightforward. 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 add the proceeds to the trust
- Transfer the title of the property to your name and sell it as your own
It’s important to note that 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.
Irrevocable Trust
An irrevocable trust is a trust that cannot be modified after it was created, unless the beneficiaries consent to the modifications. Once the grantor has created the trust, all control is effectively given over to the trustee and they no longer own the assets.
If your home is in an irrevocable trust, the situation is slightly more complex. Because an irrevocable trust cannot be altered or dissolved solely by the grantor, you will need consent from the benefactors of the trust.
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.
Selling an inherited house
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. Then, it is up to the trustee to divide the assets in accordance with the conditions of the trust. If you are the sole benefactor and inherit the title of a home that was in a trust, it is your property and you can sell it as you please.
However, in certain instances, it can make sense for the trustee to sell the home. For example, if there are multiple benefactors, the trustee can sell the home and the gains become part of the trust, which will then be distributed to the benefactors as stipulated in the trust.
In a highly competitive industry with all the pitfalls that can occur with financing, Ohio Real Title clearly stands out. We provide calm where sometimes it doesn’t exist because we believe everyone deserves an easy, successful transaction during a stressful time. This is who we are. Contact us today.
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