Sale of jointly held property in a Trust.

[Frank nKansas]

Jurisdiction

California

An 8-acre parcel of land in California is owned by six individuals. Three of the individuals own half of the land equally split between them. The second half of the land is held in an inherited Trust with the remaining three individuals sharing the property within the trust equally.

The land is about to be sold and the proceeds will ultimately be split equally between the six individuals. I'm figuring I would leave the Trust intact and allow half of the sale proceeds to be transferred to the trust for distribution after the sale is complete.

The other option would be to dissolve the trust first with each of the three beneficiaries owning their 1/6 of the parcel outright. And therefore each would receive a 1/6th of the proceeds directly. This option might require the services of an attorney and the process would be somewhat complex... I am not sure about that.

It seems that to leave the Trust intact would be the most straight forward way to handle the process. But I am hoping someone on here can shed some light on what should be done. And perhaps point out pitfalls to consider.

Perhaps the deed for the property will indicate it is being sold by the three individuals and by the Trust (four owners in effect).

Thank you!

 

[army judge]

This option might require the services of an attorney and the process would be somewhat complex... I am not sure about that.

Before you attempt or accomplish ANY changes absent the assistance of an ATTORNEY retained by you, my advice is NOT to do ANYTHING until and unless it is attempted and/or accomplished by a real estate attorney you hire.

Whatever you decide, do so ONLY after you've obtained an attorney to advise you, and ONLY YOU.

If the attempt is done, absent the advice, assistance, and direction of an attorney you hire; you just might end up losing EVERYTHING, and/or creating a very big mess.

 

[Frank nKansas]

Thank you AJ for the advice. I will proceed ahead carefully!

Frank

 

[adjusterjack]

Perhaps the deed for the property will indicate it is being sold by the three individuals and by the Trust (four owners in effect).

Perhaps?

Should be easy enough to confirm whether the name of the trust is on the deed. Don't you have a copy of the deed? If not, you can look it up on the County Recorder website and probably download a copy for free.

An 8-acre parcel of land in California is owned by six individuals. Three of the individuals own half of the land equally split between them. The second half of the land is held in an inherited Trust with the remaining three individuals sharing the property within the trust equally.

Correction. The trust (if it's on the deed) owns a 50% interest. The three beneficiaries own nothing and share nothing until the purpose of the trust if fulfilled.

The land is about to be sold and the proceeds will ultimately be split equally between the six individuals. I'm figuring I would leave the Trust intact and allow half of the sale proceeds to be transferred to the trust for distribution after the sale is complete.

Good idea. For the 2 cents my opinion is worth. Are you the trustee of the trust? If yes, you make decisions for the benefit of the trust and its beneficiaries.

The other option would be to dissolve the trust first with each of the three beneficiaries owning their 1/6 of the parcel outright. And therefore each would receive a 1/6th of the proceeds directly. This option might require the services of an attorney and the process would be somewhat complex... I am not sure about that.

That idea would create another step. The property would have to be deeded from one set of owners to another set of owners.

For example: "Trust and persons a, b, and c, as grantors, convey the property to persons a, b, c, d, e, and f."

It seems that to leave the Trust intact would be the most straight forward way to handle the process.

Agree.

But I also agree with Army Judge that the advice of an attorney, and possibly a tax pro, is needed in case unknown factors present themselves.

 

[zddoodah]

An 8-acre parcel of land in California is owned by six individuals. Three of the individuals own half of the land equally split between them. The second half of the land is held in an inherited Trust with the remaining three individuals sharing the property within the trust equally.

So...in reality, there are four owners:

A (trust) - 50%
B - 16.67%
C - 16.67%
D - 16.67%

I don't understand what you mean when you say that "the remaining three individuals shar[e] the property within the trust." Who created the trust? Who is the trustee? Are "the remaining three individuals" (let's call them E, F and G) beneficiaries? How did the trust acquire its interest in the property? What are the terms of the trust as it relates to the property (if any)?

I'm figuring I would leave the Trust intact and allow half of the sale proceeds to be transferred to the trust for distribution after the sale is complete.

This suggests that you might be the trustee of the trust. Correct? If not, who are you in relation to this scenario?

This option might require the services of an attorney and the process would be somewhat complex... I am not sure about that.

Your uncertainty negates your use of the word "might."

I am hoping someone on here can shed some light on what should be done.

In order to comment intelligently about this, one would need to review, at a minimum, the deed for the property, any relevant, prior deeds, and the trust instrument.

The trustee of the trust would be a fool not to seek input from an attorney.

 

[Frank nKansas]

I apologize... I was not notified of responses. In response to questions asked of me, here are my responses:

Yes. The property is owned by four owners:

A (trust) - 50%
B - 16.67%
C - 16.67%
D - 16.67%

The trust was created by our parents. Both are deceased.
I am the trustee,

Portion 'A' is owned by my parents' trust of which, I am the trustee. The three beneficiaries of the Trust are myself and my two sisters.

Portions B, C, and D are owned by three other individuals not related to the trust. There are six shares: Three are owned by the Trust. The remaining three are owned by individuals totally unrelated to the trust. The three people who each own 16.67% are my cousins. Their parents and my parents originally purchased the property 25 years ago.

The 50% ownership of the property, which was owned by my parents, was transferred to the trust at such time when the trust was initially established twenty years ago. The recorder's office handled the transfer of the property to the Trust. Current records held by the recorder's office show the ownership of 50% of the property to be held by Trust.

Thank you for your advice!

 

[adjusterjack]

In June you wrote that the property is "about to be sold."

That's 7 months ago.

What is the status of the sale now? On the market? Any offers? In contract? In escrow? Approaching close of escrow?

What do the trust documents say about potentially selling the property?

A revocable living trust may have become irrevocable upon the death of the trust makers and you may have to follow the instructions in the trust.

At any rate, it would probably do no harm to leave the trust as is and have the trust be the seller and have the funds flow into the trust and then distributed without having two levels of deed recordings.

Please have an attorney review the terms of the trust and guide you properly.

 

[Frank nKansas]

In June you wrote that the property is "about to be sold."

That's 7 months ago.

What is the status of the sale now? On the market? Any offers? In contract? In escrow? Approaching close of escrow?

What do the trust documents say about potentially selling the property?

A revocable living trust may have become irrevocable upon the death of the trust makers and you may have to follow the instructions in the trust.

At any rate, it would probably do no harm to leave the trust as is and have the trust be the seller and have the funds flow into the trust and then distributed without having two levels of deed recordings.

Please have an attorney review the terms of the trust and guide you properly.

Thank you.

Currently, it seems the property may be sold next month. Won't be sure until it actually occurs.

Yes the trust is now irrevocable. It has been for about 13 years now. Over the past 13 years, two or three real properties have been sold that were owned by the Trust and two real properties were transferred from the trust to beneficiaries. This piece of property is the only remaining property owned by the Trust.

I like the idea of the Trust selling the property. The Trust has sold the previous properties. And that went smoothly. The difference with this property is that it is jointly owned by the Trust and three individuals outside of the Trust. It sounds as though that is something the title company can deal with.

Thank you for taking the time to offer guidance.

 

[adjusterjack]

Yes, the title company knows how to do it.

These days it's all docu-sign anyway.

 

[Frank nKansas]

Yes, the title company knows how to do it.

These days it's all docu-sign anyway.

Sounds promising. I had completed all the forms for the previous sales and transfers. But I just as soon not do all that stuff this time.

Thanks for the support AJ !

 

[zddoodah]

I'm not quite sure what the question is now.

Part of the sale process will (or should) be that the title company that will issue the buyer's policy of title insurance will review the transaction. Part of that review will be a review of the trust instrument for the 50% owner trust and approval of the deed(s) that the escrow company will prepare.

As far as how you, as trustee, should handle this - both as to the sale itself and how you deal with the trust administration (including disposition of the trust's share of the sale proceeds), I'll simply repeat what I wrote seven months ago:

In order to comment intelligently about this, one would need to review, at a minimum, the deed for the property, any relevant, prior deeds, and the trust instrument.

The trustee of the trust would be a fool not to seek input from an attorney.

 

[Frank nKansas]

I appreciate your comments! The sale of the property is being negotiated by "owner B" on behalf of the rest of us. Owner B is not a beneficiary of the Trust. I am just wanting to ensure that I am doing all I should be doing so as not to impede the sale. My situation is that I am the Trustee of the Trust, so I want to make sure I don't slow things down. I think the best thing I can do is work closely with the title company once they become involved. I will have the Trust and other records available at such time as they are needed. I know the online property records show the owners of the property to be the Trust as well as the the three 'non-trust' individuals.

 

[Zigner]

I agree with the attorney suggestion.
But this doesn't seem too difficult, procedurally. At this time, there are four owners of the property in question. Three individuals and the trust. All four will need to sign, with the trustee signing on behalf of the trust.

Of course, you will want to make sure you are covered in your authority to dispose of the property in this manner. Your attorney should address this with you.

 

[Zigner]

Tax implications were mentioned above and also need to be factored in. The taxability is likely different if the trust sells the property and then distributes the proceeds than if each person is deeded a share of the property and then receives proceeds from the sale of their portion.

 

[Frank nKansas]

Tax implications were mentioned above and also need to be factored in. The taxability is likely different if the trust sells the property and then distributes the proceeds than if each person is deeded a share of the property and then receives proceeds from the sale of their portion.

I am hoping that if the property remains in the trust and is sold by the trust, that the cost basis would be as of the day the inheritance occurred. The cost basis was higher than the selling price so I believe that means there will be no capital gains tax. But also if the property were to be distributed prior to the sale, the cost basis would still be the property's value at the time it was inherited. So the cost basis would still be greater than the selling price.

Does that not sound correct?

Thank you!

 

[adjusterjack]

As far as I know but I'm not a tax pro. Best to have a chat with one.

 

[Zigner]

I am hoping that if the property remains in the trust and is sold by the trust, that the cost basis would be as of the day the inheritance occurred. The cost basis was higher than the selling price so I believe that means there will be no capital gains tax. But also if the property were to be distributed prior to the sale, the cost basis would still be the property's value at the time it was inherited. So the cost basis would still be greater than the selling price.

Does that not sound correct?

Thank you!

This is too important to rely on information from random strangers on the internet.

 

[Frank nKansas]

This is too important to rely on information from random strangers on the internet.

The advantage to me is to better understand what questions to ask. My experience with lawyers is that they will give me advice without explanation. I like to know what questions to ask during the meeting. And I want to make sure the lawyer has all the facts they need to make an informed decision.

 

[Zigner]

The advantage to me is to better understand what questions to ask. My experience with lawyers is that they will give me advice without explanation. I like to know what questions to ask during the meeting. And I want to make sure the lawyer has all the facts they need to make an informed decision.

Advice without explanation is cheaper than advice with explanation.

 

[Tax Counsel]

A revocable living trust may have become irrevocable upon the death of the trust makers and you may have to follow the instructions in the trust.

All inter vivo trusts become irrevocable when the last person with the power to revoke the trust dies. In estate planning for a married couple that means the trust becomes irrevocable when the second spouse dies. You have to read the trust instrument, of course, but assuming the trust was drafted by a minimally competent attorney that's what you'll see unless the couple was rich enough that the federal estate tax might apply to the trust. If the trust document was not well drafted it might be possible to reform the trust to get the result that the trust grantor intended, but that typically requires court approval, so some attorney fees and courts will be paid to fix it.

At any rate, it would probably do no harm to leave the trust as is and have the trust be the seller and have the funds flow into the trust and then distributed without having two levels of deed recordings.

That has to be done with a bit of care. Once the trust is irrevocable the trust pays income tax on any gain on the property unless the proceeds of the sale are distributed to the beneficiares in the same tax year (the trust's tax year) that the property was sold. If they do sell the property and do the distribution in the same tax year the beneficiary pays the tax on the gain. The tax rates on trust income income are much more progessive than for individuals, meaning if the trust pays the tax the tax bite will be larger if they don't get the distributions out in a timely manner.