Yes, You Can Sell Your House If It’s In a Trust (But There’s Some Important Details)

So you’ve put your house in a trust and now you’re wondering if you can sell it? The short answer is yes, you can – but how exactly you go about it depends on some key factors. Let me walk you through everything you need to know about selling a house that’s in a trust.

Understanding Trusts: The Basics First

Before diving into the selling process, let’s clarify what we’re dealing with. A trust is basically a legal arrangement where someone (called a trustee) holds and manages assets (like your house) for the benefit of someone else (the beneficiaries).

There are two main types of trusts that affect how you’ll sell your house

1. Revocable Trust (also called a living trust)

   • You maintain control
   • Can be changed or canceled
   • Often used to avoid probate

2. Irrevocable Trust

   • Cannot be easily changed once established
   • Assets permanently transferred out of your name
   • Often used for asset protection or tax benefits

Who Has the Authority to Sell the House?

This is crucial – only the trustee has the legal authority to sell property held in a trust. The trustee must follow the specific instructions outlined in the trust document

Here’s how it typically works:

• If you’re the grantor AND trustee of a revocable trust, you maintain control and can sell the property.
• If someone else is the trustee, that person must handle the sale according to the trust’s terms.
• If it’s an irrevocable trust, the designated trustee makes decisions, sometimes needing beneficiary approval.

As attorney Wayne Patton notes, “If you’re creating your trust, you can get specific with the rules that you want to incorporate.” This means the trust document itself will be your roadmap.

Selling a House in a Revocable Trust

If your house is in a revocable living trust, selling it is pretty straightforward:

1. As the grantor and trustee, you maintain control
2. You can list and sell the property much like you would normally
3. The main difference comes at closing, where you’ll sign documents as the trustee rather than as an individual

For example, instead of signing as “Jane Smith,” you’d sign as “Jane Smith, Trustee of the Smith Family Trust.”

The process is similar to a traditional sale:

• Work with a real estate agent
• List the property
• Accept an offer
• Close the sale
• The proceeds go either to the trust or wherever you direct (since you maintain control)

Selling a House in an Irrevocable Trust

This gets more complicated because you’ve permanently transferred ownership of your house to the trust. Here’s what you need to know:

1. The trustee has the authority – not you (unless you’re named as the trustee)
2. The trustee must follow the terms outlined in the trust agreement
3. Many irrevocable trusts require consent from all beneficiaries before selling
4. The proceeds must remain within the trust and be managed according to its terms

Travis Christiansen, an attorney, says, “The executor or trustee has the say; they’re in charge. But they must follow the terms of the will, the law, and a duty to act in the best interest of the beneficiaries.” “.

Step-by-Step Process for Selling a House in a Trust

No matter what type of trust you have, here’s a general roadmap:

1. Review the Trust Agreement

Start by reviewing the trust document with an attorney to understand:

• Who has authority to sell
• What conditions must be met
• Any specific instructions about the sale
• How proceeds should be handled

2. Gather Necessary Documents

You’ll need:

• The trust agreement
• Certificate of Trust (a condensed document showing key trust info)
• Deed showing the property is in the trust
• If applicable, death certificate of the grantor

3. Decide Whether to Use a Real Estate Agent

While not legally required, using a real estate agent is often advisable, especially when:

• The trustee is busy managing other trust matters
• The property is large or expensive
• You want to maximize the sale price (which may be a fiduciary duty)

Real estate advisor Stephen Michalakos recommends: “Choose a real estate agent that hasn’t only done this before but who has proven results of working multiple probate sales successfully.”

4. List and Sell the Property

The trustee will:

• Sign the listing agreement as trustee
• Manage showings and offers
• Accept an offer
• Sign the closing documents as trustee

5. Handle the Proceeds Correctly

This is super important:

• The check should be made out to the trust (e.g., “The Smith Family Trust”)
• Funds must be deposited into a trust account
• Distribution follows the terms in the trust agreement

Tax Considerations When Selling a House in a Trust

The tax implications vary depending on your trust type:

For Revocable Trusts

• Capital gains tax is typically calculated the same as if you owned the property personally
• You may be eligible for the home sale tax exclusion ($250,000 for individuals, $500,000 for married couples)

For Irrevocable Trusts

• Who pays the taxes depends on whether proceeds stay in the trust or go to beneficiaries
• If the trust became irrevocable after death, you might benefit from a “step-up in basis”
• This means capital gains are calculated based on the home’s value at death, not the original purchase price

The taxable gain would only be $20,000, not $70,000, if someone bought a house for $150,000, it was worth $200,000 when they died, and then they sold it for $220,000.

Common Mistakes to Avoid

Here are some pitfalls to watch out for:

1. Not understanding the trust’s terms

   • Review the trust document carefully with a professional
   • Know who has authority to sell and under what conditions

2. Improper signing of documents

   • Always sign as “Trustee of [Trust Name]”
   • Never sign in your individual capacity

3. Mishandling proceeds

   • Ensure the check is made out to the trust
   • Follow the trust’s instructions for distribution

4. Poor communication with beneficiaries

   • Keep beneficiaries informed about the sale
   • This can prevent disputes and legal challenges

5. Failing to maintain proper records

   • Document everything related to the sale
   • Keep detailed financial records for tax purposes

Pros and Cons of Selling a House in a Trust

Advantages

• Skip the probate process if the grantor dies
• Potentially reduce tax liability
• Protect assets from creditors
• Provide clear instructions for property management

Disadvantages

• Possible complications with multiple beneficiaries
• Capital gains taxes for beneficiaries if proceeds are distributed
• Loss of control once assets are in an irrevocable trust
• Extra paperwork and potential legal fees

When to Seek Professional Help

I strongly recommend working with professionals when selling a house in a trust, especially in these situations:

• You’re unclear about the terms of the trust
• The trust has multiple beneficiaries with different interests
• The property has significant value
• There are potential tax complications

A team approach works best, including:

• An estate attorney who understands trusts
• A CPA for tax planning
• A real estate agent experienced with trust sales

Final Thoughts

You can sell your house even if it’s in a trust, but the steps will depend on the type of trust and your role in it. You can make it through the sale successfully if you know the basics and follow the right steps.

Remember these key points:

• The trustee has the authority to sell
• Follow the terms outlined in the trust document
• Proper signing of documents is crucial
• Handle the proceeds according to the trust’s instructions
• Consider the tax implications

If you’re planning to put your house in a trust or thinking about selling a house that’s already in one, I recommend consulting with an estate planning attorney to ensure you understand all the implications and requirements.

Have you sold a house that was in a trust? What challenges did you face? Share your experiences in the comments below!

FAQs About Selling a House in a Trust

Yes, you don’t need court permission to sell a house in a trust. However, it depends on the trust’s terms and the laws in your state. Most revocable trusts don’t need court approval, but some irrevocable trusts might.

Q: Who pays property taxes on a house in a trust?
A: For a revocable trust, typically the grantor. For an irrevocable trust, it depends on the trust terms – either the trust itself or sometimes the beneficiaries.

Q: Can I put my house in a trust and still qualify for the capital gains exclusion when I sell?
A: Yes, if it’s a revocable trust and you meet the IRS ownership and use tests (lived in the home for at least 2 of the last 5 years).

Q: How do I transfer my house into a trust?
A: You’ll need to execute a new deed transferring ownership from yourself to the trust. This usually requires filing the deed with your county recorder’s office.

Q: Can creditors come after a house in a trust?
A: For a revocable trust, yes. For an irrevocable trust, generally no – that’s one of the main benefits of an irrevocable trust.