As a loving parent, you may have placed your house in a trust so that you can leave your family with something. Or maybe it’s the other way around; your parents, who are still alive, named you the beneficiary of a house in their trust.
As a grantor or a beneficiary, you may wonder if selling a house in a trust before death is legally allowed. After all, inheritances usually get distributed after their original owners pass away, don’t they?
While that’s common, there are still situations wherein you can sell a house in a trust before its creator passes. And while it’s not always straightforward, it’s completely doable.
In this guide, we’ll discuss what you need to know about trusts and selling real estate properties they hold. So read on, as what you learn here may help you, whether you’re a grantor or a beneficiary.
Is Selling a House in a Trust Before Death Allowed?
Yes, selling a house in a trust before the grantor passes is possible. Also referred to as the trustor, the “grantor” is the person who created the trust.
However, the exact procedures of selling a house in a trust depend on whether it’s revocable or irrevocable.
What Are Revocable Trusts?
These are the most common types of trusts used in estate planning, offering grantors the flexibility to amend or revoke them while they’re still alive and mentally competent.
So, if a trustor decides to sell a house in a revocable trust, they can do so anytime. They don’t need anyone’s permission to sell it.
A chief disadvantage to revocable trusts is that they don’t provide credit protection. This means they’re still subject to legal claims placed on them by creditors.
A perfect example of a legal claim is a lien on a house due to an unpaid mortgage. A grantor can place their home with a mortgage in a revocable trust anytime. However, this doesn’t free them from their duty of paying off the loan.
Selling a House in a Revocable Trust
There’s no problem if the grantor completes all mortgage payments before their passing. If no other creditor has a claim on the house, the trustor can remove the property from the trust and sell it while they’re still alive. They can use the proceeds to pay off the loan and keep the rest for themselves or put it in a bank account that they could also place in the revocable trust.
The thing is, most homes in the U.S. are still under a mortgage. Conversely, a study found that only 23% are mortgage-free.
So, what if a grantor’s property is still under a mortgage, and they pass away before paying it off? In this case, the revocable trust’s successor trustee would have to deal with the lien on the house first.
A successor trustee is the person appointed by the grantor to manage the trust after their passing. The trustee may also have to take over if the trustor becomes mentally incapacitated. The latter can occur as a result of cognitive disorders, which the CDC says affect 16 million people in the U.S.
Unless it’s against a trust’s instructions, a trustee can sell a house before a grantor’s death. If the property still has a mortgage, the trustee can request the lender to allow for its sale so they can pay off the loan afterward. Alternatively, the trustee can look for direct cash home buyers willing to take over the responsibility of dealing with the lien.
What About Irrevocable Trusts?
With an irrevocable trust, the grantor forfeits the ownership of the assets they put in the document. They also relinquish their control over the trust document and everything in it. They then appoint a trustee to manage it while they’re still alive.
With an irrevocable trust, the trustee’s appointment is immediate. This means their duties already begin even while the grantor is still alive. However, they must still abide by the trustor’s instructions specified on the trust document.
Therefore, irrevocable trusts aren’t as easy to modify as revocable trusts. Grantors can still amend them but must get the beneficiaries’ consent first or through a court order. This is why selling a house in an irrevocable trust is much more challenging.
Selling a House in an Irrevocable Trust
Let’s say you’re the grantor of an irrevocable trust and wish to sell a house you placed in it. Before you can do this, you must get the permission of the people you created the trust for (your beneficiaries and heirs). You need their consent to transfer the property’s title back to you.
You can then sell the house once your name is on its title.
The problem is if you have multiple beneficiaries and can’t get ahold of every one of them. Without everyone’s consent, you can’t sell the property in your irrevocable trust. In this case, you may have to file a court order to proceed with the sale.
If you’re the successor trustee of an irrevocable trust, you must follow the same procedures.
Why Sell a House in Trust Before a Grantor’s Death?
As a grantor or trustee, you may wonder why you should consider selling a house before death. Here are several situations wherein this decision can be beneficial.
Meet the Grantor’s Financial Needs
Estate planning was more common among wealthy and older people before, but this is no longer true. Today, even younger adults own estate planning documents; almost 27% of Americans aged 18 to 34 do! Nearly one in four people within the 35 to 54 age bracket also report having these documents.
Setting up a trust early on is a wise financial move but can also hinder a grantor’s financial needs.
Let’s say you placed a house in a trust for your child, who’ll only turn 18 ten years from now. However, suppose you run into some financial problems five years from now. In this case, you could sell the home for cash and use the funds to address your money issues.
Another example is if you, the grantor, are nearing retirement. Let’s also say your adult kids have done well and are financially secure. If so, you may want to sell the house in your trust and use the funds for your personal needs and enjoyment.
Selling a house in a trust can also benefit grantors who may fall ill and incur hefty medical bills. In this case, you, the grantor, can sell a house in your trust rather than taking out medical loans. You can then use the proceeds to pay your medical expenses and improve your overall quality of life.
Avoid Ongoing Property Maintenance Duties
According to a poll, maintenance and repairs cost U.S. homeowners an average of $6,000 in 2022. And even if yours won’t need repairs yearly, experts recommend setting aside at least 1% of its value for its upkeep. So, if your home is worth $300,000, you should ideally have $3,000 saved for its yearly maintenance.
While that’s a lot of money, you don’t want to skip property maintenance since it’s a top cause of damaged homes. If this happens to your house, it would likely cost you over $6,000 to repair and restore it.
If that house is in a trust, you’d still want to keep it in top condition for your heirs. It depends on how you set up the document, but you may have to tap its funds or your accounts to cover the maintenance costs. Either way, it means more expenses on your end as a grantor.
So, if you don’t want to keep spending money on maintaining a house in a trust, you could sell it instead. You could do this even to a property needing major repairs or upgrades. You can sell it as-is for cash, keep some of the funds for yourself, and then put the rest back into the trust.
Avert Potential Inheritance Issues
The sad, unfortunate truth is that inheritance disputes among beneficiaries are common. Sometimes, heirs, including siblings, even take matters to court.
Let’s use an inherited home shared by two siblings as an example. One sibling may want to sell the house, while the other wants to keep it. This disagreement may force them to sue each other, resulting in a court having to settle things for them.
You can mitigate the risks of such problems by eliminating the potential source of a dispute. In this case, it’s the house you put in your trust.
If you sell the house before death, you can just deposit the sales proceeds in a bank account in the trust. This is easier to divide and distribute among your beneficiaries than a house.
Considering Selling Your House in a Trust?
Selling a house in a trust before death is not only doable but can also benefit grantors and beneficiaries. However, remember that it’s easier to do this with a revocable trust, as an irrevocable trust entails more steps.
If you have a house in a trust you wish to sell ASAP, We Buy Houses Memphis can help. We are professional home cash buyers you can rely on for a quick home sale.
So, request your cash offer today! We’ll help you transform that house into cash within the next week or two.