In most cases, successor trustees have the authority to sell trust property without obtaining approval from the beneficiaries. However, there are exceptions. If the trust document specifically requires the consent of beneficiaries before a sale — or outright prohibits the sale of certain trust property — the trustee’s hands may be tied.
Because selling a house held in a trust is a major action, it’s not uncommon for beneficiaries to view such a move with suspicion. But, in many cases, selling trust property isn’t just within the trustee’s rights — it may actually be one of their responsibilities as trustee.
For instance, trustees are often required to make the trust “productive,” which can mean investing assets wisely or selling property that isn’t generating income. Still, a trustee’s powers are not without limits.
As fiduciaries, trustees must always act in the best interests of all the beneficiaries. They can’t prioritize their own interests or play favorites — even if they’re also a beneficiary. Doing so might amount to a serious breach of trust.
Suppose your deceased parents’ trust leaves their house to you, but you’d prefer to receive cash from the sale of the house instead. The trustee — who also wants the house — sells it to themselves at a discount without putting it on the market. That’s a clear violation of their fiduciary duties. The trustee should have sought the highest offer to maximize your inheritance, not given themselves a deal at your expense.
As another example, suppose you and your siblings are inheriting a house during a booming real estate market. In this case, the prudent move may be for the trustee to sell the home right away. Holding onto it could cause the trust to miss out on a higher return while also racking up maintenance costs.
Needless to say, sales of trust property by the trustee can be complex and emotionally charged. However, understanding the rules can help protect your rights and your inheritance. Continue reading to explore when a trustee can sell property, what limitations they may face, and what recourse beneficiaries have if a trustee breaches their duties.
What Is a Trust Sale?
As the name implies, a trust sale involves the sale of real property held in a trust. The trustee is responsible for overseeing the process — from listing the property and negotiating offers to closing the sale and distributing the proceeds to beneficiaries, all in accordance with the provisions of a trust.
Unlike estate property, which typically must pass through the often lengthy and expensive probate process, trust property generally avoids probate. This means a trustee can usually sell trust property without court involvement, allowing for a more streamlined sale.
Can a Beneficiary Stop the Sale of a Property?
Whether a beneficiary can stop a successor trustee from selling a house in a trust after death largely depends on the provisions of the trust. If the trust expressly gives beneficiaries the right to block a sale, they may be able to exercise that right. On the other hand, if a trust grants the trustee unilateral authority to sell trust property or is silent on the issue, beneficiaries may not have many options for intervening, provided the sale serves the collective best interests of the beneficiaries.
While this may be frustrating for you to hear — especially if you are adamant about being passed down physical properties instead of proceeds from their sales — it may provide you comfort to know that you are guaranteed other rights, which potentially could help you rein in a trustee’s power if they are attempting to sell trust property without your prior approval.
Your trust beneficiary rights include:
- The right to be kept reasonably informed about the administration of the trust
- The right to request a copy of the trust instrument
- The right to receive and challenge trust accountings
- The right to receive timely trust fund distributions
- The right to impartial treatment by the trustee
- The right to sue the trustee
If you believe a trustee has overstepped their authority or violated your rights as a beneficiary, it’s vital you act quickly. In many cases, formal legal action isn’t immediately necessary. A well-written, firm letter to the trustee outlining your concerns may be enough to prompt the trustee to reconsider their actions or reverse course.
That said, if a trustee’s actions have already harmed the trust — or are putting the trust at serious risk — it may be necessary to get the courts involved. A probate attorney can help assess the situation and guide you toward the most effective path forward.
Can a Trustee Override a Beneficiary?
When a trustee and beneficiary disagree over a matter of trust administration — such as whether to sell a trust property — the trustee may have the authority to move forward, even without the beneficiary’s consent.
Still, while successor trustees typically have broad discretion to manage trust assets, their authority is always governed by their fiduciary duties.
Take, for example, a situation in which a trustee wishes to lease a multi-unit property held by a trust to generate income. As long as the trust doesn’t prohibit it, this arrangement generally would be permitted, since it would financially benefit the trust. However, if the trustee were to occupy one of the units rent-free, that would likely violate their fiduciary duties, as it deprives the trust — and, by extension, the beneficiaries — of potential income.
Beneficiaries should note that, no matter how much authority a trustee has, they can never use it for personal gain at the beneficiaries’ expense — even if the trustee is also a beneficiary. However, trustees are generally entitled to take a reasonable trustee fee for the time and effort they dedicate to managing a trust.
Although trustees may have the ability to make decisions on their own, doing so without consulting beneficiaries — especially when it comes to significant matters like selling trust property — can lead to conflict.
If you’re a beneficiary and feel that the trustee is failing to keep you reasonably informed, such as by not notifying you in advance of significant actions they intend to take, it’s important to speak with a qualified probate attorney about how to protect and enforce your rights.
5 Facts Beneficiaries Should Know About Successor Trustee Sales
If a trust holds real properties, the trustee may have to decide whether to sell the properties and distribute the proceeds to beneficiaries or transfer titles to them directly. This decision depends largely on whether the trust includes specific instructions regarding the distribution of real property.
In some cases, the trust instrument will clearly state how the properties should be handled; in others, the trustee will have the discretion to make that call.
Beneficiaries should take time to understand how successor trustee sales work, especially if they suspect a trustee’s proposed actions may not serve their best interests. Acting quickly is crucial — once a trustee sells a property, it can be extremely difficult, if not impossible, to recover it.
In the following sections, we’ll cover five key aspects of successor trustee sales that every beneficiary should know.
1. The Trustee Must Adhere to the Provisions of the Trust
Prior to selling trust property, the trustee must consult the trust instrument. The reason for this is simple: trust provisions may dictate whether the trustee can sell trust property and whether additional conditions must be satisfied — such as securing beneficiary consent — before a sale can be made.
If the trust instrument forbids the selling of trust property or requires trust property to be distributed in a specific way, the trustee generally must follow those instructions.
If the trust instrument is silent on the issue of successor trustee sales, then the trustee generally can distribute the trust’s real properties using whatever approach they believe would best serve the beneficiaries of the trust.
That said, it’s not uncommon for trust creators (called settlors, grantors or trustors) to include special instructions regarding the sale of certain trust properties. For example, a trust could contain a provision stipulating that the family home can only be sold if all beneficiaries agree to the sale.
As a beneficiary, you are entitled to a copy of the trust. It is crucial you request a copy upon being notified about the trust’s administration, or it will be impossible for you to know what the trustee’s powers are with respect to selling trust property. If necessary, a probate attorney can help you obtain a copy of the trust instrument.
2. The Trustee Must Keep Beneficiaries Reasonably Informed
Beneficiaries have a right to be kept reasonably informed about the trust’s administration. However, what the trustee views as reasonable may not align with your expectations. To ensure the trustee and you are on the same page, it’s a good idea to candidly communicate what your expectations are at the start of administration.
Additionally, you should thoroughly review the trust inventory the successor trustee provides you to determine what real properties the trust is holding, as well as the value of each. If you would prefer for a certain property not to be sold so you can inherit the property rather than the proceeds from its sale, you can let the trustee know.
That said, it’s important for beneficiaries to keep in mind that trustees are not always required to involve them in the process of selling property in a trust after death. While it would be ideal for trustees to discuss proposed sales of trust properties with beneficiaries and secure their consent, it’s not necessarily a breach of trust if they don’t.
3. The Trustee Must List Trust Property on the Open Market and Accept the Best Offer
In most cases, a trustee is expected to list trust property on the open market to secure the highest possible offer. However, they must also be mindful of the timeline they’re working under. Holding out for an ideal offer may not be feasible — especially if the property is accruing maintenance costs or declining in value.
Ultimately, a trustee must exercise sound judgment to serve the best interests of the trust and its beneficiaries, as well as make a reasonable effort to sell trust property for at least fair market value. To determine fair market value, the trustee should have the property independently appraised. This will give them a sense of how much the property is worth, which can help guide the asking price when they list the property.
If a trustee intends to sell trust property for significantly less than its appraised value, they should have a compelling reason for doing so. For instance, if the trust has creditors it cannot repay with the trust funds that are available, the trustee may be justified in accepting the best offer — even if it’s below market value.
However, if a trustee sells property for below market value without valid justification or the written consent of the beneficiaries, it may constitute a breach of fiduciary duty. As a beneficiary, you generally would have the right to pursue a fiduciary misconduct claim in such an instance, seeking the trustee’s removal and possibly even a surcharge, which could make the trustee personally liable for the financial loss the trust suffered as a result of the below-market-value sale.
4. The Trustee Must Account for the Sale
Trustees are generally required to provide beneficiaries with a formal trust accounting at least once a year for every year the trust remains active. This accounting should include a breakdown of assets that have entered and exited the trust, as well as the value of each.
For instance, if a trust real property was worth $1 million at the time of the settlor’s death and then is sold by the trustee for $1.5 million, this change in value should be accounted for.
It would be advisable for you to have a trust account attorney inspect the accountings provided to you for red flags. Also, bear in mind that you generally have the right to request an informal accounting from the trustee at any time. As an example, if you believe the trustee sold property for below market value, you could request documents related to the sale to confirm or dispel your suspicion.
Note that when a trustee fails to provide required accountings or provides accountings that are inaccurate, misconduct could be indicated. In such a scenario, it’s crucial to have an experienced probate attorney investigate the matter to ensure the trust isn’t being actively harmed, nor was harmed in the past.
5. The Trustee Must Deposit Proceeds from the Sale of Property into a Trust Account
The trustee is required to immediately deposit proceeds from a sale of trust property into a dedicated trust account.
If you come to find out the trustee deposited proceeds from the sale of trust property into their personal account or somewhere else entirely, it’s considered commingling, which is a serious breach of trust for which the trustee should be held accountable.
Trustees have a duty to avoid commingling trust funds with non-trust funds at all costs, as the wrongful mixing of assets can result in trust funds becoming undecipherable from non-trust funds, which could lead to financial losses for the trust. Trust funds ending up in a trustee’s personal bank account can be an innocent mistake, but, more often, it’s a red flag suggesting the trustee may be stealing from the trust.
How to Sell a House in a Trust
For both trustees and beneficiaries, understanding the process of selling a house in a trust after death is essential. This knowledge helps trustees avoid personal liability and enables beneficiaries to take action if the trustee fails to follow the proper procedures.
1. Review the Trust Provisions
Before proceeding with the sale of trust property, the trustee should thoroughly review the trust instrument to understand any specific instructions regarding the sale of trust property. It’s crucial for the trustee to be clear on their rights, limitations and any conditions that must be met for a sale of trust property to be considered valid.
If a trust contains confusing or ambiguous language, it’s advisable to consult a probate attorney or the probate court for clarification. Trustees should never attempt to interpret vague terms on their own, as doing so could be regarded as a breach of their duty of impartiality.
2. Prepare the Trust Property for Sale
Most properties require some level of maintenance before being listed for sale, whether it’s repairs, landscaping or simple cleaning. Staging the home also can enhance its marketability. Typically, a trustee will consult with a real estate expert, such as a licensed realtor, to determine whether any changes to the property are needed to maximize its fair market value or whether the property should be sold “as is.”
As long as the services are necessary for the sale and benefit the trust, and the trust doesn’t prohibit such expenses, trust funds can generally be used to cover these costs.
3. List and Sell the Trust Property
At this stage, trust property can be listed on the open market. Most trustees choose to hire a real estate agent to assist with this process.
Keep in mind that the trustee must have the proper documentation ready to facilitate a sale. These include specialized documents that the trustee is required to provide the buyer when the property being sold is owned by a trust.
Once a buyer is found, both the trustee and the buyer will need to sign a sales agreement and other documents required by escrow. A title company may also be involved in the process to verify the property can be insured.
4. Distribute Proceeds from the Sale According to the Trust Provisions
Once the proceeds from the sale are collected by the trustee, they should be promptly deposited into the trust account — which the trustee should have set up at the beginning of the trust’s administration. The trustee must then refer to the trust document to determine how and to whom the proceeds should be distributed.
For example, if the trust specifies that four siblings each inherit 25% of the proceeds from the sale of a house one year after the settlor’s death, the trustee should hold the funds in the trust account until the one-year anniversary. Upon that date, the trustee can distribute the proceeds accordingly.
FAQs: Selling a House in a Trust
If you still have questions about a trustee’s right to sell trust property, check out the frequently asked questions below to find answers. For personalized guidance, we recommend reaching out to our firm directly.
Is selling a house in a trust before death permitted?
It is generally permitted for a trustee to sell a house in a trust before death — provided the trust doesn’t forbid them from doing so.
In most cases, when a settlor is alive and competent, they will designate themselves as the trustee of their trust to retain control over the trust’s assets. It’s only after the settlor loses capacity or dies that the person whom they named as successor trustee takes over management of the trust. It is not permitted for a successor trustee to sell a house in a trust until they formally step into their role.
Is selling a house in an irrevocable trust after death permitted?
There is little difference when it comes to the rules surrounding successor trustee sales of property in revocable trusts versus irrevocable trusts. In both cases, it’s crucial that the trustee consult the trust instrument to determine whether any specific instructions are provided around successor trustee sales. If they are, the trustee must abide by them. If absent, the trustee generally can sell property in an irrevocable trust without consent from the beneficiaries.
The key difference between a revocable and irrevocable trust is that once the latter is drafted, it cannot be revoked or modified without consent from all the beneficiaries and the settlor (if still living).
While revocable trusts can be modified or revoked by the settlor during their lifetime (as long as they are mentally competent), they generally become irrevocable upon the settlor’s incapacity or death.
Is the trustee required to provide beneficiaries with a notice of sale?
Although a trustee generally is not required to provide beneficiaries with a notice of proposed action prior to selling trust property, many nevertheless opt to do so to limit their liability and keep beneficiaries informed of significant trust-related decisions.
A notice of proposed action is a form the trustee may provide to describe an action they intend to take — or not take. Beneficiaries have a right to object to the proposed action in writing.
California Probate Code sections 16500 – 16504 outline procedures surrounding Notices of Proposed Action.
When a trustee provides this notice and beneficiaries don’t object, the trustee is generally shielded from liability — both to current and future beneficiaries — for proceeding with the proposed action. However, if a beneficiary objects, either the trustee or the beneficiary may petition the probate court to decide whether the action should proceed as proposed, proceed with modifications, or be denied altogether.
If you intend to object to a notice of proposed action, be aware that the burden of proof will fall on you to demonstrate why the proposed action should not move forward. Additionally, if a trustee provides a notice of proposed action but later decides against taking that action, they must notify you of their decision and the reasons behind it.
Can a trustee live in a trust property?
While a successor trustee may be permitted to live in a trust property if they are paying fair market rent to the trust, doing so can create a conflict of interest — one that may be best avoided altogether. For instance, what if the trustee claims to be paying fair market rent but is actually paying significantly less?
Even if the trustee is also a beneficiary and stands to inherit the property, they generally cannot live in it rent-free until its title is formally transferred to them. The reason is simple: the property could be generating income for the trust, benefiting all beneficiaries rather than just one. Since the trustee is obligated to act in the best interests of all beneficiaries, living in the property without fairly compensating the trust may amount to a breach of fiduciary duty.
If you suspect that a trustee is residing in a trust property without paying appropriate rent, it’s important to take prompt legal action. A probate attorney can help you assess whether the rent being paid reflects true fair market value and advise you on your options if it does not.
Can a trustee buy property from the trust?
According to Probate Code section 16004, trustees generally are not permitted to sell property to themselves. When trustees make business dealings that benefit themselves at the expense of the trust, it’s called self-dealing.
Self-dealing is a major infraction for a trustee because it violates their duty of loyalty. When a trustee acts in their own best interest, they deprive beneficiaries of their rightful shares of a trust.
That having been said, trustees may be permitted to sell property to themselves if certain conditions are met and the sale would not adversely impact the beneficiaries’ interests. For example, some trusts specifically authorize self-dealing transactions — so long as the transaction is fair and disclosed to beneficiaries.
If a trustee does intend to self-deal by selling trust property to themselves, they should seek prior approval from the court or written approval from beneficiaries. They should also match or surpass fair market value and the best offer made on the property. If they were to sell property for less than this price, it would not be in the beneficiaries’ best interests.
While trustees selling property to themselves for below fair market value is rarely permitted, in the rare circumstance that it is, it is especially vital for trustees to obtain written consent from the beneficiaries prior to finalizing the sale.
If a trustee unfairly sells trust property to themselves, beneficiaries have the right to challenge the transaction in court, seeking for the transaction to be voided. They also can try to hold the trustee personally liable for any financial losses incurred as a result of their self-dealing.
How long does a trustee have to sell a house?
Unless the trust instrument outlines specific deadlines, trustees are generally not bound by rigid timelines when it comes to selling trust property. However, they are expected to act within a reasonable timeframe.
In the case of standard revocable trusts with outright distribution provisions, distributions are typically expected to be completed within 12 to 18 months following the settlor’s death — though this can vary depending on the size and complexity of the trust.
As a rule of thumb, trustees should avoid unnecessary delays to facilitate timely distributions to beneficiaries and minimize the risk of legal complications or disputes.
Can a trustee sell property to a beneficiary?
While a trustee can sell property to a beneficiary, it’s a delicate situation that can easily be misconstrued by the other beneficiaries to mean the trustee favors that beneficiary over the others.
To properly sell to a beneficiary, the trustee must treat them as they would a buyer who is not associated with the trust. In other words, they must sell the property for at least fair market value.
If the trustee sells trust property to a beneficiary without having the property appraised or listing the property on the open market, the other beneficiaries may allege that the trustee mismanaged trust assets.
For instance, if the trustee rejects a better offer to favor a beneficiary or gives a beneficiary a particularly good deal, it could backfire on the trustee. This is why it can be a legal minefield for a trustee to sell property to a beneficiary. It’s largely ill-advised unless all the beneficiaries of the trust consent.
Still have questions about a trustee selling a house in a trust?
Watching a trustee make unilateral decisions surrounding your loved one’s trust can be an upsetting and stressful experience for beneficiaries. If you have concerns about the trustee overstepping their authority, remember that help is available.
Hiring a Keystone attorney can take the guesswork out of the process. Whether you want to pursue a claim against a neglectful trustee or simply have questions about the options you have when a trustee is selling property without your approval, feel free to give us a call.
You don’t have to watch silently while a trustee mismanages your loved one’s trust. The attorneys at Keystone specialize in helping beneficiaries across a wide range of situations.
Contact us today to learn more.
