Perhaps you stand to inherit a parent’s home from a trust. Rather than the trustee selling the home, you would prefer them to distribute it to you because you want to continue to live in the home or due to sentimental attachment you have to it. As a beneficiary, would it be within your rights to the stop the trustee from selling the property?
Perhaps a trust contains many real properties. You are concerned the trustee may try to sell some of them for below what they’re worth. As a beneficiary, how can you stay informed about potential successor trustee sales of property?
Trustees generally can not only sell trust property, but there are times when it’s their responsibility to do so. However, if trustees go about the process in the wrong way, you have every right to take legal action against them.
Trustees bear the responsibility of administering a trust while upholding a duty of loyalty to beneficiaries. This means the trustee must always make decisions that are in the beneficiaries’ best interests, while never placing their own interests above theirs.
For many trustees, the trust administration process includes maximizing the value of the trust by making investments of trust assets, and in some cases, selling trust property.
For example, if multiple beneficiaries stand to inherit a house, and the housing market is booming, it may be preferable for the trustee to sell the property in question. If the trustee were to keep the property in trust to distribute to beneficiaries down the road, not only might the value of the property decrease, but the trust could continue to incur the costs of managing the property.
A trustee may sometimes have the responsibility to sell property, but can a trustee sell property without all beneficiaries approving? Discover what a beneficiary can do to stay informed about potential successor trustee sales and what options a beneficiary has when a trustee wants to sell property without their permission.
What Are the Rights of Trust Beneficiaries?
As a beneficiary, you may or may not have the right to stop a successor trustee sale of property. Whether you have this right ultimately will come down to the terms of the trust.
While this may be frustrating to you, especially if you are adamant about owning certain trust properties, it may provide you comfort to know that you are guaranteed other rights, which potentially could help in instances where the trustee is attempting to sell trust property without your approval.
Trust beneficiary rights include:
- The right to be kept reasonably informed about the trust and its administration
- The right to 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 from the trustee
- The right to sue the trustee
If a trustee’s actions have impinged on your rights as a beneficiary, it is vital you take action to enforce your rights. A probate attorney can help you determine the best course of action.
What Are the Powers of a Successor Trustee?
It is essential that beneficiaries understand the powers of a successor trustee so they can take action if the actions of the trustee go beyond the bounds of their authority.
A successor trustee has the power to make decisions on behalf of the trust, but this power is tempered by their fiduciary duties.
For example, the trustee’s duty to be prudent means that the trustee must preserve trust assets, as well as make reasonable decisions to grow them. If, for instance, the trustee wishes to invest trust assets in safe dividend stocks with low volatility, this generally would be allowed; however, if the trustee wishes to invest trust assets in a risky business endeavor, this could be regarded as a violation of their fiduciary duties.
Powers of a successor trustee include:
- Hiring third-party advisers
- Selling trust property (unless doing so is forbidden by trust provisions)Making distributions to beneficiaries according to the terms of the trust
- Litigating on behalf the trust
- Buying, selling and investing trust assets
- Taking a reasonable compensation
- Refusing their appointment or resigning from their role
Beneficiaries should note that regardless of a trustee’s powers, they can never use them to their own benefit, even if the trustee is also a beneficiary. However, trustees are generally entitled to take a reasonable trustee fee for the time they spent fulfilling their trustee responsibilities and managing the trust.
While the trustee can make decisions about the trust without consulting with trust beneficiaries it is strongly recommended for them to involve you in the process to minimize the possibility of conflict.
The best way for beneficiaries to enforce their rights when a trustee is selling trust property is to understand the process, which we discuss in the following sections.
Successor Trustee Sales: What Beneficiaries Should Know
If there are real properties in a trust, the trustee will have to decide whether to sell these properties or distribute them by transferring title to the beneficiaries who are entitled to receive them. Sometimes, the trust itself will dictate this decision, and other times, the decision will be left to the trustee’s discretion.
The process for selling a house as a trustee (or any other real properties) is not unlike the process any other seller would have to go through to sell property. Trustees, however, owe you fiduciary duties, which they must consider prior to making a sale.
If you have concerns that a successor trustee’s proposed sale of trust property is unethical or not in line with your best interests, you should not delay getting in touch with a probate attorney. Once a trustee completes a sale, it can be difficult, if not impossible, to recoup the property at issue.
Trustee Must Follow the Trust Instrument
Can a successor trustee sell property if the trust instrument does not explicitly provide them with that power? The answer is that it depends.
Prior to selling trust property, trustees must consult the trust instrument.
The reason for this is simple: The trust instructions may dictate whether the trustee can sell property, and whether there are certain conditions that must be considered.
If the trust instrument forbids the selling of trust property or requires it to be disposed of in a specific way (e.g., by transferring ownership of it to a charity), the trustee must follow those instructions.
If the trust instrument does not provide specifics concerning successor trustee sales, then the trustee likely can dispose of trust property through whatever approach they believe would best serve the beneficiaries of the trust.
That said, it’s common for grantors to draft special instructions regarding the sale of trust property. For example, the trust could provide for a trust real property asset to remain in trust until it is distributed to a particular beneficiary. Or the trust could contain a provision stating that the family home can only be sold if every beneficiary agrees to the proposed sale.
As a beneficiary, you are entitled to a copy of the trust. If the trustee has failed to provide you with one, 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.
Trustee Should Keep Beneficiaries Informed
Beneficiaries have a right to be kept reasonably informed about trust administration. However, what the trustee considers to be a reasonable amount of information may differ from what you consider to be a reasonable amount of information.
To ensure that both you and the trustee are on the same page, you should have a conversation with the trustee at the start of administration about the types of decisions you would like to be kept informed about. For instance, if would like to be notified about proposed successor trustee sales, you should make that clear to the trustee.
Additionally, you should review the trust inventory the successor trustee provided you at the start of administration. From this document, you can 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 it eventually can be distributed to you, you should let the trustee know.
However, it’s important to keep in mind that trustees generally are not required to involve beneficiaries in the process of selling trust property. It would be ideal for them to discuss proposed sales of trust properties with beneficiaries, but it is not necessarily trustee misconduct if they don’t.
If beneficiaries don’t approve of a proposed sale, but the trustee has decided to move forward with it, they should get in touch with a probate attorney as soon as possible to learn whether anything can be done to stop it.
Trustee Should List Property on Open Market & Accept Best Offer
While a beneficiary may have the ability to hold out for the sale price they desire when selling property, a trustee may be operating under a timeline. This means the trustee may not have the capacity to hold out for an ideal offer, especially if the property is incurring maintenance costs or losing value with every day that passes. Still, the trustee should sell the property for at least fair market value.
To determine fair market value, trustees should have the property independently appraised. Once they have a sense of how much the property is worth, they should list it on the open market. If a trustee sells property for a fraction of its worth, it is your right as a beneficiary to bring a fiduciary misconduct claim against the trustee, which potentially could make the trustee personally liable for repaying the trust what it lost as a result of the below market value sale.
With that said, there are circumstances that could justify a trustee selling property for below fair market value. For example, if the trust has creditors it is unable to repay with the trust funds that are available, the trustee may need to sell property for the best available offer, even if it falls short of what the property is worth.
If the trustee proceeds to make a sale of trust property for below fair market value without having valid reasons for doing so, you likely won’t be able to recoup the property, but you can get the help of a probate attorney to try to have the trustee removed and surcharged for being in violation of their fiduciary duties.
Beneficiaries Can Object to a Sale if Provided Notice of Proposed Action
A Notice of Proposed Action by Trustee is a form the trustee may provide you that describes an action they intend to take or not take. Beneficiaries have a right to object to the proposed action in writing.
While trustees usually are not required to provide a Notice of Proposed Action to beneficiaries prior to making a sale of trust property, many do in an effort to limit their liability and keep beneficiaries informed of their decisions.
California Probate Code sections 16500 – 16504 provide instructions regarding Notices of Proposed Action. If beneficiaries fail to object to a Notice of Proposed Action, the trustee is absolved of liability to current and future beneficiaries for taking the proposed action. If a beneficiary does object, either the beneficiary or the trustee may petition the probate court to take the proposed action, take the proposed action with modifications or deny the proposed action altogether.
Keep in mind that if you plan to object to a Notice of Proposed Action in a court proceeding, you will have the burden of proving why the proposed action should not be taken. You should also remember that if a trustee provides you with a Notice of Proposed Action and then decides not to take the proposed action, they are required to notify you of their decision and the reasons behind it.
Trustee Must Account for Sale
Trustees are required to provide beneficiaries with a formal trust accounting at least once a year for every year the trust remains active. These accountings should include a breakdown of assets that have entered and left the trust, and their values.
For instance, if a trust real property was worth $1 million at the time of the grantor’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 review the accountings provided to you for red flags. Also bear in mind that you generally have the right to request informal accountings from the trustee at any time. As an example, if you believe the trustee sold property for below fair market value, you can request an informal accounting to confirm your suspicion.
Note that if a trustee has failed to provide the required accountings or has provided inaccurate accountings, it could signal misconduct. You should reach out to a probate attorney as soon as possible to have them investigate so no further harm is caused to the trust.
Trustee Must Deposit Proceeds From Sale Into Trust Account
The trustee is required to immediately deposit every dollar earned from the sale of trust property into an account owned by the trust. You should take immediate action if you find out the trustee deposited the proceeds from a sale into their personal account or has kept them somewhere else. Trustees have a duty to not commingle trust assets with their personal assets or assets outside the trust, as doing so would be considered a breach of their fiduciary duties. Trust assets ending up in a personal account controlled by a trustee can be an innocent mistake, but more often, it’s a red flag suggesting that the trustee is stealing from the trust.
Do Beneficiaries Have to Approve of a Successor Trustee’s Sale of Property?
Can a trustee sell property without all beneficiaries approving in California? The short answer is yes (provided the trust doesn’t forbid it), but you should still make it point to communicate your wishes regarding the disposal of trust property to the trustee at the start of administration and throughout it.
While trustees have a duty to communicate with beneficiaries about important decisions they are making in regard to the trust, some trustees don’t take this responsibility as seriously as they should. If this is the case, you should make your requests for information in writing so you have a record of your correspondence with the trustee to present to the court in the event a misconduct claim needs to be brought against them for a breach of duty,
If a trustee consistently fails to communicate with you about important trust-related decisions, you may want to consider working with a lawyer to file a petition for trustee removal or suspension, and possibly even damages.
Can a Successor Trustee Sell Property If Beneficiaries Disapprove?
If beneficiaries explicitly disapprove of a sale, can a trustee sell property in a trust? The answer is that it depends.
You may be opposed to selling real properties in a trust for a variety of reasons, including a belief that the property may appreciate. You would rather see the property being leased to a tenant or distributed to you, so you or the trust can reap the benefits of a better housing market later.
While you can express your desires surrounding the sale of trust property to the trustee, the decision of whether to sell likely will still rest with the trustee. Only if the trust calls for the trustee to seek beneficiary approval for successor trustee sales of property will you have a say in whether or not the property can be sold.
On the other hand, if the trustee provides beneficiaries with a Notice of Proposed Action, they can formally object to the sale by mailing their objection to the trustee and then petitioning the court to try to have the proposed action modified or denied, though there is no guarantee the court will block the sale.
FAQs
Certain circumstances can change the rules when it comes to selling property as a trustee. Review our FAQs to learn more about the situations that can arise when selling a house as a trustee or other trust properties.
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 the beneficiaries of their rightful share of the trust. Furthermore, it is an act that can get the trustee removed and surcharged.
With that 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, as 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 written approval from beneficiaries or the court. 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, and therefore, would be considered a breach of their fiduciary duties.
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 breaches their duties by selling trust property to themselves, you have a right to challenge the transaction in court by filing a petition seeking for the sale to be voided. You can also try to hold the trustee personally liable for any financial losses incurred as a result of their unethical self-dealing. For the best chance at success, you should work with a probate lawyer during this process.
While a trustee can sell property to a beneficiary, it’s a delicate situation that can easily be misinterpreted by the other beneficiaries, who may regard it as a violation of the trustee’s duty of impartiality.
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 mismanagement of trust assets.
For instance, if the trustee rejects a better offer to favor a beneficiary or gives a beneficiary a particularly good deal, it can backfire on the trustee. This is why it can be a legal minefield when a trustee sells to a beneficiary; it’s largely ill-advised unless all beneficiaries of the trust consent.
Any evidence that suggests the trustee treated the purchasing beneficiary better than they would treat an average buyer can render the trustee personally liable for any losses incurred as a result of the sale. Beneficiaries can also petition the court to have the trustee removed.
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 grantor (if still living).
While revocable trusts can be modified or revoked by the grantor during their lifetime (as long as they are mentally competent), they generally become irrevocable upon their incapacitation or death — at which point, they cannot modified or revoked. There is no difference when it comes to successor trustee sales of property in revocable trusts versus irrevocable trusts. Regardless of the category the trust falls under, trustees should consult the trust instrument to determine whether instructions are provided for successor trustee sales. If they are, the trustee should abide by them. If they are not, the trustee generally can sell property in an irrevocable trust without consent from the beneficiaries.
If you object to a trustee’s decision to sell a trust asset, there are actions you can take. Before you begin this process, it’s worth meeting with a trust attorney, who understands the laws of your state and can negotiate with the trustee on your behalf.
For example, if you’re a beneficiary who has a sentimental attachment to your grandmother’s property, it is understandable why you would want to try to stop its sale. You can communicate your wishes to the trustee, but the trustee generally is not obligated to heed them, especially if the proceeds from the sale of the property are needed to settle the trust’s debts. Keep in mind that unless the trustee is in violation of the terms of the trust or their fiduciary duties, you cannot sue them for selling trust property. However, if you have evidence that shows the trustee disregarded the terms of the trust, sold property for below fair market value or mismanaged trust assets, you may be able to hold them accountable in court.
If trustees intend to sell property for below fair market value, and they want to do so without being held personally liable for the losses that will be incurred as a result of the sale, they will need to obtain beneficiary approval prior to selling the property.
There is a caveat, however. If there are special circumstances that would justify the trustee selling trust property for below market value, such as administration costs being extraordinarily high, the trust having substantial debts, or maintenance of the property draining the trust of its resources, the trustee may be justified in selling trust property for below market value without beneficiary approval.
Still, beneficiaries should not take trustees for their word. If a trustee has sold trust property for less than it’s worth, they should seek the help of a probate attorney to review trust accountings to determine whether the below market value sale was justified. If it seem that it wasn’t, beneficiaries can work with their lawyer to sue the trustee for breaching their duties.
Keystone can help trust beneficiaries enforce their rights.
Watching a trustee make decisions about the trust of your loved one can be a stressful for beneficiaries. If you have questions or suspicions regarding the trustee of your trust, remember that help is available.
Hiring an attorney from Keystone can take the guesswork and stress 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. Our attorneys at Keystone specialize in helping beneficiaries in a wide range of situations.
Contact us to learn more and feel free to request a free consultation at your convenience.
