Selling a house in a trust can feel complicated.
Can the property be sold without removing it from the trust?
How do capital gains and tax exemptions come into play?
And what does the entire process actually involve?
This guide will answer those questions by breaking down the complexities and clearing up common misconceptions.
Here’s everything you need to know to sell a trust-held home with confidence.
Can a property in a trust be sold?
Yes, a house in a trust can be sold, but the process varies based on the type of trust.
Each type has its own rules and level of complexity.
Revocable trust: A property in a revocable trust, also called a living trust, remains under the control of the person who created it (the “grantor” or “trustor”). Acting as the trustee, the grantor can manage the trust’s assets and sell the property like any other asset. Selling a house in a living trust is typically straightforward since the grantor can change the trust’s terms at any time.
Irrevocable trust: Selling a house in an irrevocable trust can be more complex during the grantor’s lifetime. Once the trust is established, control of the property shifts to the trustee and, in some cases, the beneficiaries. The trust must explicitly permit the sale, and beneficiary approval may be required.
The process can become simpler when the trustee gains full authority to sell the property, as outlined in the trust’s terms. A step-up in basis may also apply, reducing taxable gains for the beneficiaries.
Testamentary trust: Testamentary trusts are created through a will and become active when the will is carried out. These trusts manage and distribute assets to beneficiaries, but they do not impact the sale of property during the grantor’s lifetime. Unlike revocable and irrevocable trusts, testamentary trusts are subject to the probate process.
How to sell a house in a trust
Selling property in a trust differs from the standard steps to selling a home.
There are additional pieces to the puzzle, like reviewing trust documents and ensuring legal requirements are met.
Here are the steps to guide you through the process of selling a home held in a trust.
1. Gather trust documents
Start by ensuring you have the full trust document, including the trust certification and any amendments.
These documents are critical for verifying who has the authority to sell the property.
If the trust is irrevocable, the title company will require these documents to confirm that the trust’s terms allow for a sale and identify who has the legal authority — whether it’s the trustee or co-trustees.
For living trusts, the authority to sell usually rests with the grantor (the property owner).
But the escrow company may still request a copy of the original trust to confirm.
Carefully read through the trust documents to check for any restrictions or requirements that discuss selling the property.
If anything is unclear or if approvals from beneficiaries or co-trustees are needed, consult the attorney who prepared the trust.
Having the right documents ready from the start will help prevent surprises and delays during the sale of the home.
2. Discuss the sale with all relevant parties
Having a conversation about the sale of a trust-held home with all involved individuals is critical.
Why?
Because making decisions unilaterally can violate trust terms and strain relationships among beneficiaries and trustees.
Therefore, you should discuss plans with beneficiaries if you’re the grantor of a living trust, even though you’re not legally required to.
Clarifying whether the sale proceeds will remain within the trust or be distributed to you can prevent misunderstandings.
For an irrevocable trust, these discussions are not just beneficial — they’re often required.
If you’re the grantor, you’re typically at the mercy of the trustee’s consent to make changes or reclaim property ownership for sale.
What if you’re the trustee of an irrevocable trust?
The trust may require approval from beneficiaries or outline specific conditions for selling the home.
So keeping everyone informed and aligned is imperative.
Uncomfortable as these conversations may be, they’re necessary to prevent future disputes.
Keep written records of all discussions to maintain transparency and ensure legal compliance throughout the process.
3. Choose the right agent with trust sale experience
A real estate agent is a critical ally for selling a house in a trust.
But the key is partnering with the right agent.
Look for all four of these critical features when choosing a Realtor to sell your home:
- Relevant experience: The right agent will have experience selling homes similar to yours in your area and price range, as well as liquidating real estate under a trust. Consider these the bare minimum requirements.
- A low dual agency rate: A trustworthy real estate agent will have a history of primarily representing only the seller (and not the seller and the buyer in the same sale). The agents you should avoid are the ones who have a higher-than-average percentage of acting as a dual real estate agent –– because they are more likely to put their interests before yours.
- Stellar reviews: Browse an agent’s online reviews from other home sellers so you can get feedback from past clients. Pay attention to the specific verbiage used and how detailed the reviews are.
- No contract commitment: The exclusive listing agreement you sign with an agent when selling guarantees the agent’s commission as long as your home sells. That’s because you’re locked in for an extended period of time (usually six months). Make sure your agent will let you cancel at any time, without owing any commissions. This flexibility keeps your agent motivated and reduces the chances of them overpromising to earn your business.
These qualities are crucial for selecting a Realtor who can sell your trust-held property for the best possible price.
That’s why our no-cost service applies these same standards to carefully vet and match sellers with top-performing local listing agents.
4. Prepare to list the home
Preparing to put your trust-held home on the market is one of the most important steps.
Why?
Because the right preparation will put you in the absolute best position to get the highest sale price in the shortest amount of time.
This is another reason why hiring the right real estate professional is key.
They’ll be able to guide you with the right plan and make the selling process easier.
Here are several of the key things you’ll want to strategize about with your agent.
- Getting a home inspection: A pre-listing inspection can help you learn about the home’s potential issues (especially important if you haven’t been the one living there).
- Repairs and upgrades: An experienced agent will know which improvements will bring the most return on your investment.
- Listing price: A reputable and experienced listing agent will be able to guide you on the ideal price by looking at comparable sales and factoring in local market trends.
- Staging: A staged property helps prospective buyers visualize the place as their own, which increases the chances of selling faster and for a higher price.
- Marketing plan: The best real estate agents utilize stellar photos, video, social media, local market knowledge, and more to maximize the reach to the right buyers.
5. Review offers
It’s natural to feel anxious when receiving an offer for a home held in a trust.
But it’s important that you ensure the buyer is vetted before discussing the offer details.
Doing so can help spot red flags that may delay the sale –– or worse –– send the house back on the market.
You’re going to have to rely on your real estate agent for this.
Here are the key things you want to make sure your agent verifies when reviewing the offer:
Pre-approval letter: Any buyer should be pre-approved before submitting an offer. Your agent should call the buyer’s loan officer to verify the pre-approval and get an idea of how qualified the buyers are.
Down payment: What’s the buyer’s loan-to-value ratio (amount financed divided by the sale price)? Your agent should confirm that the buyer has at least enough funds for the down payment and closing costs (the more, the better).
Contingencies: Did the buyer make their offer contingent? The three most common contingencies are an inspection, loan, and appraisal. If one or more contingencies are included, confirm how many days the buyer has to release the contingency.
Seller concessions: A buyer’s offer can include a request for a monetary credit from the seller. This is usually included to help cover some or all of the buyer’s closing costs. Confirm with your agent if seller concessions are included in the offer, and if so, how much.
6. Finalize the sale of your trust-owned property
The closing process for selling a house in a trust is somewhat similar to that of a typical home sale.
The buyer’s loan officer will:
- Submit the buyer’s loan to underwriting
- Order the appraisal
- Work with the buyer to close on time.
There may be an inspection (and negotiation) if the buyer included an inspection contingency.
If this is the case, there may be repairs done on the property for any agreed-upon work.
But a request for repairs from the buyer after you accept an offer is negotiable.
The signing of the final closing documents generally occurs a few days before the closing date.
Who is required to sign depends on the type of trust.
This may include the grantor, the grantor and their spouse, the trustee, or the co-trustees.
The trust agreement explicitly states who has authorization to sign.
In cases where the grantor or trustee cannot act, a person holding power of attorney may have authorization.
If you’re selling a house in a living trust and retain control as the grantor or trustee, you’ll need to transfer the property title from the trust to your personal name.
You’ll do this by signing a “Trustee’s Deed Upon Sale,” which will be included in the final closing documents.
The escrow company will guide you through this process.
7. Distribute the sale proceeds as required
The final step in handling a trust real estate sale is to distribute the net proceeds.
Funds are generally wired from the escrow company to the trust’s bank account within one business day of closing.
Who receives what depends on the terms of the trust.
The proceeds are most likely staying with you if you’re the grantor and the founder of a living trust.
But that’s not the case with an irrevocable trust.
Trustees are responsible for managing the distribution process to ensure each beneficiary receives their rightful share as defined by the trust.
It’s key to ensure that the distribution of the proceeds from the sale of a house in a trust are executed meticulously.
Because proper execution fulfills legal obligations and preserves harmony among the beneficiaries.
Capital gains tax and the sale of trust property
You’re typically subject to capital gains tax when you sell a home for more than you bought it for.
But the rules –– and their tax implications –– get more complex when the property is held in a trust.
Do capital gains taxes apply when selling a house in a trust?
Yes, selling a property in a trust can trigger capital gains taxes.
How much tax will be payable on the sale depends on:
- Whether the property qualifies for an IRS exemption
- How the property’s basis is calculated
- The type of trust (revocable, irrevocable, or testamentary).
Primary residence exemption
If the property is the grantor’s primary residence — or the trustee meets IRS ownership and residency requirements — the sale may qualify for a valuable tax break.
- Individuals can exclude up to $250,000 in capital gains if they owned and lived in the home for at least two of the past five years.
- Married couples filing jointly can exclude up to $500,000.
Example: If a married couple bought a house for $300,000 and sold it for $584,000, they wouldn’t owe capital gains taxes if they had used the property as their primary residence for at least two of the last five years.
How capital gains are calculated
Capital gains taxes are based on the property’s basis — the original purchase price plus certain eligible costs, such as:
- Home improvements, like a new roof or a remodel
- Selling expenses, such as closing costs and real estate agent commissions.
Example: If the home’s original purchase price was $300,000 and you spent $10,000 on upgrades and $24,000 on selling costs, your basis would total $334,000. Any sale amount above this would be a capital gain.
The property’s basis — its starting value for capital gains — is sometimes adjusted to its fair market value. This is known as a step-up in basis, and it can reduce taxable gains when the trust property is sold (common when selling after the grantor passes).
How the type of trust impacts capital gains taxes
The type of trust determines how capital gains taxes are calculated:
- Living trusts: If you’re selling a house while the grantor is alive, they may qualify for the primary residence exemption if IRS requirements are met.
- Irrevocable trusts: Selling a property in an irrevocable trust generally doesn’t qualify for the primary residence exemption because the grantor typically no longer meets the IRS ownership and residency requirements.
- Testamentary trusts: Created through a will, these trusts take effect during the probate process and typically allow for a step-up in basis, minimizing capital gains for heirs.
Key takeaways for selling a trust property
Selling a home in a trust can be a complicated process.
The key?
Make sure you have the right professionals guiding you at every step.
You can ensure you get a listing agent who is best-qualified to handle your trust sale by leveraging our unique agent screening process.
Our no-cost service vets agents to ensure you connect with someone experienced in trust sales who puts your interests first.
