Selling a house can be tough but when that house is in a trust, things get even more complicated. Whether you’re the trust creator, someone who inherited a house in a trust, or a trustee trying to manage trust property, you need to understand the process of selling a house in a trust. This can be especially tough if you need to sell fast or have a property that needs repairs. In those cases working with the best cash home buyers in Texas can be a smooth solution. This article will go over the process of selling a house in a trust, the different types of trusts, capital gains taxes, and how to navigate the sale of a house in a trust. We’ll also cover how cash home buyers can make the process easy for those looking to sell trust-owned properties fast and hassle-free.
Selling A House In A Trust
A house in a trust is not owned by a person, it’s owned by the trust itself. This makes selling the property a bit different from a regular home sale. The good news is you can still sell a house in a trust but there are some special steps and considerations to be aware of.
Before we get into the trust documents and how to sell a house in a trust, let’s first cover the different types of trusts and how they compare to wills.
Revocable (Living) Trust vs Irrevocable Trust
There are two main types of trusts: revocable trusts and irrevocable trusts. Each has its own rules and benefits which will impact how you sell a house in the trust.
Revocable Trust
A revocable trust, also known as a revocable living trust, is a type of trust that can be changed or canceled by the person who created it (the grantor) at any time. This flexibility is one of the main reasons people choose revocable trusts. Here’s what you need to know:
- The grantor retains control of the trust assets while they’re alive.
- The trust can be changed or ended if the grantor’s wishes or circumstances change.
- Assets in a revocable trust avoid probate which can save time and money for heirs.
- After the grantor’s death, the trust typically becomes irrevocable.
Irrevocable Trust
An irrevocable trust, on the other hand, can’t be changed or canceled once it’s set up. This might sound less appealing but irrevocable trusts have some benefits especially when it comes to taxes, inheritance tax, and asset protection. Here’s what you need to know:
- Once assets are put into an irrevocable trust the grantor gives up control over them.
- The trust can’t be changed without the permission of the trust beneficiaries.
- Assets in an irrevocable trust are usually protected from creditors and lawsuits.
- Irrevocable trusts can provide tax benefits, potentially reducing estate taxes and capital gains taxes.
Wills and Trusts: What’s the Difference?
While we’re talking about trusts, it’s worth mentioning how they differ from wills. Both wills and trusts are used in estate planning but they work differently:
- A will only take effect after the grantor’s death, a trust can start working as soon as you create it.
- Will go through probate court which can be time-consuming and expensive. Trusts avoid probate.
- Will become public records after you die, trusts are private.
- Trusts can manage your assets if you become incapacitated, wills can’t.
Now that we know the basics of trusts let’s sell a house in a trust.
How to Sell a House in a Trust
Selling a house in a trust varies depending on whether you’re dealing with a revocable or irrevocable trust and whether you’re the grantor or a beneficiary. Let’s break it down:
Grantor/Trust Settlor in a Revocable Trust
If you’re the person who set up a revocable trust and wants to sell a house in the trust you’re in luck. As the grantor of a revocable trust, you have the power to sell trust property. Here’s what you need to do:
- Review the trust agreement to see if there are any restrictions on selling the property.
- If you’re also the trustee (which is common in revocable trusts) you can do the sale yourself.
- If someone else is the trustee you’ll need to direct them to sell the property.
- The sale process is similar to selling a house you own personally but the trust will be listed as the seller.
Grantor/Trust Settlor in an Irrevocable Trust
Selling a house in an irrevocable trust is more complicated because the grantor has given up control of the trust’s assets. If you’re the grantor of an irrevocable trust:
- You’ll need permission from the trustee and possibly the beneficiaries to sell the house.
- The trust document may have rules about selling trust property that must be followed.
- You may need to get court approval to sell the house depending on the trust terms and your state’s laws.
If You Want to Sell an Inherited House
If you’ve inherited a house in a trust the process of selling it depends on the type of trust and your role in it. Here’s what to do:
- Are you a beneficiary or the new trustee of the trust?
- Review the trust documents to see what your rights and responsibilities are.
- If you’re a beneficiary, work with the trustee to initiate the sale.
- If you’re the new trustee you’ll be responsible for the sale process.
- Consider getting legal advice from an estate planning attorney to make sure you’re following all the steps.
Laws and Rules When Selling a House in a Trust
When selling a house in a trust you must follow all applicable laws and rules. These can vary by state so it’s a good idea to consult with a local real estate professional, estate planning attorney, or tax advisor. Here are some of the key legal considerations:
- The trust has the legal authority to sell the property.
- Follow the trust agreement rules.
- Comply with state trust laws and real estate rules.
- Handle the tax implications of the sale.
Tax Consequences of Selling a House in a Trust
Taxes, taxes. Speaking of taxes there are several tax considerations when selling a house in a trust:
Capital Gains Taxes
When you sell a house in a trust you may be subject to capital gains taxes. The amount of tax depends on:
- The difference between the sale price and the property’s basis (usually the fair market value at the time it was put into the trust or at the grantor’s death).
- Whether the house was a primary residence.
- Type of trust (revocable or irrevocable).
In some cases, trusts may get a stepped-up basis which can reduce capital gains taxes.
Estate Taxes
For irrevocable trusts selling a house can have estate tax implications. The sale proceeds become part of the trust’s assets which can affect the overall estate tax calculation.
Inheritance Taxes
Depending on your state there may be inheritance taxes when selling an inherited house in a trust.
Work with a tax professional or tax advisor to understand all the tax implications of selling a house in a trust.
How to Sell a House in a Trust
- Review the trust documents to see what restrictions or requirements are for selling.
- If you’re not the grantor, get the necessary permissions from the trustee and/or beneficiaries.
- Decide how you’re going to sell by selling directly to a cash home buyer who is familiar with trusts, hiring a real estate agent who is experienced in trust sales, or selling by owner.
- Determine the fair market value of the property.
- List the property for sale disclosing it’s owned by a trust.
- When you get an offer, review it with the trustee and beneficiaries if required.
- Work with a title company or escrow company to handle the closing.
- Make sure all legal requirements are met including providing a trustee’s deed to transfer ownership.
- Distribute the sale proceeds according to the trust terms.
Selling a house in a trust can be tricky. It’s always a good idea to work with professionals like a real estate professional, estate planning attorney, and tax advisor to make it smooth and legal.
Whether you have a revocable living trust, an irrevocable trust, or a testamentary trust, this will help you sell a house in a trust more easily.
Costs to Consider
Selling a house whether in a trust or not comes with costs. Here are some of the main costs to consider:
Estate Taxes
Estate taxes may apply if the total value of the trust’s assets exceeds certain limits. The good news is most people won’t have to worry about federal estate taxes as the exemption is very high (over $12 million in 2023). But some states have their estate taxes with lower limits so check your state’s rules.
Capital Gains Taxes
Capital gains taxes can be a big expense when selling a house in a trust. The amount you’ll owe depends on how long the trust has owned the property and how much it’s appreciated. One benefit of selling a house inherited through a trust is you may get a “stepped-up basis” which can reduce the capital gains tax.
Real Estate Agent Commissions
If you decide to use a real estate agent to sell the house you’ll need to pay a commission. This is usually 5-6% of the sale price split between the buyer’s agent and the seller’s agent. While this can be a big expense and eat into your profits, you can instead sell directly to a cash home buyer. They don’t charge real estate commissions and may even pay closing costs.
Closing Costs
Closing costs are the various fees and expenses that come due when you close the sale of a house. These include title insurance, attorney fees, transfer taxes, and more. As the seller, you may be responsible for some or all of these costs depending on your agreement with the buyer.
When selling a house in a trust remember Texas property tax laws may have specific implications for your trust-owned property and situation. If you need to sell your house fast in Mansfield or anywhere in the Dallas-Fort Worth area working with a cash home buyer may be a good option. Companies like Four19 Properties buy houses as-is which can be especially helpful when dealing with trust-owned properties that need repairs or updates.
If you’re wondering how to sell a house in 5 days, it’s not always possible but cash home buyers can often close much faster than traditional buyers. If you need to sell fast, look for the best cash home buyers in Texas. These companies advertise with phrases like “we buy houses in Dallas” and can provide a hassle-free selling process with no real estate agent commissions.
Final Takeaways
Selling a house in a trust can be overwhelming but with the right information and guidance, it’s doable. Whether you’re dealing with a revocable or irrevocable trust, are the grantor or a beneficiary the key is to know what type of trust you have and follow the proper legal process.
Consider all the costs, taxes, and closing costs when planning the sale. And don’t forget to explore all your options for selling property – while traditional home sales through real estate agents are common, alternatives like cash home buyers can get you a quick and hassle-free sale which can be especially helpful when dealing with trust-owned properties.
If you’re unsure about anything when selling a house in a trust it’s always a good idea to consult with legal and financial professionals who specialize in trust and estate matters. They can give you personalized advice based on your situation and help you make the best decisions for yourself and the trust beneficiaries.
Selling a house in a trust may take a little extra work but with time and planning you can get through it and come out on top.