Probate & Trust Real Estate Sales

Selling Real Estate That's In Probate Or A Trust

If you’re planning to sell a property that’s either in probate or held in a trust, you definitely want to make sure all your ducks are in a row before putting the home on the market. And if you’re buying such a home, it’s a good idea to make sure the sellers have confirmed that everything is in order, too. For as you’ll see below, there could be flies in the ointment.

TRUST SALES

More properties are owned in living trusts today than ever before; it’s become a very popular way of holding title. But just because your real property is listed on the asset page of your trust doesn’t automatically mean that it’s really in the trust.

In order for the property to be held in a trust the owners must sign a grant deed and have it recorded with the county. Yet we’ve seen instances over the years where a seller thinks their property is in their trust only to discover that a deed was never recorded. Or that there were errors in the deed.

That’s why it’s important to make sure everything is in order before you sell. Fortunately, in most cases, if you discover an error or oversight, it’s a pretty quick and easy fix. Just sign and record a new deed and all is well.

Why Isn’t My Property Still In The Trust?

Once a property goes into your trust it stays there unless you later record a deed to remove it from the trust. But if you refinanced your home a while ago, your lender might have required you to take it out of the trust when you signed your loan papers. That was a pretty routine occurrence up until a few years ago.

In order to return things to the way they were, all you had to do was sign & record a new deed putting the home back into the trust after the refinance was complete. But those who forgot to do so no longer hold title in their trust, despite what appears in their trust.

What If You’re A Successor Trustee?

Now, let’s say the owners refinanced and forgot to put the property back into their trust and have since passed away. Their children are listed as successor trustees, but since the property is no longer in the trust, the kids could have a huge problem on their hands. We’ve seen such a situation with several past clients, when the successor trustees were trying to sell their deceased parents’ home.

The first tip-off that something was awry came when we ordered a title report and saw mom and dad listed as joint tenants. Yet their kids had a trust document showing the property was part of the trust. Again, it doesn’t matter what the trust says...what matters is what’s on the most recently recorded deed. If the property’s not in the trust even though you think it is, a normal simple title transfer could suddenly turn into an unexpected lengthy and costly probate experience.

Other Trust Issues

Prior to becoming real estate agents, we both worked in the title industry and saw too many deals fall apart at the 11th hour due to issues that should have been resolved before putting the home on the market. Here are some things to look out for to make sure that doesn’t happen to you:

  • Does the name of your trust that appears on the deed exactly match the name that appears on the trust itself? If the official name of your trust is the Smith Family Trust and the recorded deed refers to it as the Steven and Mary Smith Family Trust you likely have a problem. Unless the names match exactly, the title company may consider it a wild deed and be unable to issue title insurance (and you can’t get a loan without title insurance). Again, if everyone is alive, you can easily rectify the problem by recording a new deed with the correct name of the trust.
  • Make sure the full legal description was recorded when you deeded the property into your trust. We had a client a few years ago who was selling as a successor trustee and when we got the title report we discovered that the attorney who had created his parents’ trust over 20 years earlier failed to include the property’s entire legal description in the deed putting it into the trust. An easement was included but not the rest of the property. The seller had to hire an attorney and obtain a court order to attach the rest of the legal description to the property -- a process that took about 5 months and cost over $1,000.
  • Are all the trustees capable of signing? If some are alive but others have passed away, the title company will need to record an original certified death certificate for those who are no longer alive. And, if any of the trustees are alive but not mentally or physically capable of signing, the trust will usually require statements from several doctors in order to exempt them from signing.
  • When can a successor trustee act on behalf of the trust? As long as one or more trustees are still alive and capable of signing legal documents, they are the only ones who can transact business on behalf of the trust. Once all the trustees have passed away or are legally unable to do so, the successor trustee takes over that role.
  • Do the names of the trustees match the names on the contract? Occasionally, a son or daughter is added to a parents trust, not as a successor trustee by as a current trustee. If so, they’ll need to sign all contractual documents as well as the closing papers. Whoever is listed as a trustee must sign.
  • Do you have an unaltered signed copy of the trust? The title company may want to see a signed copy of your trust to confirm who has responsibility for transferring trust property. But every so often a trustee is only able to find an unsigned copy or one that’s missing a subsequent amendment. We were once involved in a transaction where the only copy our client was able to find not only was unsigned but on the page listing the names of some of the successor trustees, someone had crossed out several names and scribbled in others. Our client was elderly and vaguely remembered wanting to change the trust some years back after her husband had passed away, but couldn’t remember if she’d ever done so. She figured that the scribbled copy was what she had given to her attorney, who had since retired and returned her file. She never was able to find anything more and it became a huge title problem.

PROBATE SALES

Selling a property that’s going through probate can be quite different than one that’s held in a trust and is being sold by a successor trustee. With a trust, the trust document itself will specify the requirements that must be followed, whereas with probate, a property sale can require court approval before escrow can close.

There are different types of probates and some can take longer than others. We’ve been involved in several probate transactions where the administrator of the estate was able to act pretty much in the same manner as a successor trustee.

But we’ve also been involved in probate sales that took many months and provided an opportunity for anyone to show up at the court hearing and overbid the current offer at the eleventh hour.

The specifics on when a probate sale requires court approval and how long the probate process should take is best left to members of the legal profession. We’ve seen or heard or probates running several months but we also know that some can take six months to a year or more.

Make Sure The Seller Has The Proper Authority

As with trust sales, it’s critically important to make sure that the person who intends to list the property has the legal authority to do so. Just because a person has been named the administrator doesn’t mean he or she has carte blanche to list and sell the property. The probate court might need to be involved in setting the price and approving other contract terms.

ABOUT DISCLOSURES

If the property is held in a living trust and the trustees are still alive, they have the same disclosure requirements as any other seller. But if the property is in probate or being sold by a successor trustee acting on behalf of trustees who have passed away, the seller is exempt from many of the normal contractual disclosures, including the Transfer Disclosure Statement, which is one of the documents that alerts buyers to defects or problems with the home.

Though probate and some trust sales are exempt from many common disclosures, the successor trustee or administrator is not exempt from disclosing a material fact that they are aware of. The buyer is still entitled to that information, so if you’re selling a home that belonged to your parents and know about a defect or concern, you should disclose it.

IMPORTANT: All of the above can have significant legal and financial considerations. And circumstances can differ from person to person. Accordingly, the above is not to be construed as legal advice but rather as an overview of real estate-related matters we have encountered. Before acting on any information provided on this page or elsewhere in this web site, you are advised to contact an experienced, reputable attorney.