Trustee Selling Inherited Property

The Trustee's Authority to Sell Trust Real Property

The trust instrument is the first place authority to sell comes from. Many California trusts expressly give the trustee power to sell real property, sometimes with instructions about timing or about who receives the proceeds.

California law also supplies a default power. Under Probate Code section 16226, "The trustee has the power to acquire or dispose of property, for cash or on credit, at public or private sale, or by exchange." That power works alongside the instrument, and the instrument can shape how it is used.

In most trust sales, the trustee acts without a court's approval. That is one of the clearest differences from a probate estate, where a court's confirmation may be part of the sale.

Authority to sell does not come from the family agreeing. It sits with the trustee, as the trust document and the Probate Code provide. Some trusts do add conditions, such as the consent of a co-trustee, a trust protector or a named beneficiary before a sale. Whether any condition applies depends entirely on the trust's own wording.

Where two or more co-trustees serve together, the trust instrument usually says how they act: jointly, by majority, or with one able to sign alone. A title company will typically look at the trust's terms to see whose signatures the deed requires.

A trustee buying the house from the trust raises a direct conflict with the duty, described below, to act solely in the beneficiaries' interest. A trustee considering that kind of purchase typically asks the trust's attorney first.

Trust sale authority is also separate from the Independent Administration of Estates Act, which applies to probate estates and not to trusts.

Trustee Duties to Beneficiaries During a Sale

A trustee selling the family home is often selling a place they grew up in, while answering to siblings who are grieving too. The law sets out what the trustee owes them.

Loyalty comes first. Under Probate Code section 16002, "The trustee has a duty to administer the trust solely in the interest of the beneficiaries." The section's subdivision (b) allows a trustee who administers two trusts to sell property between them only if the sale is fair and reasonable to the beneficiaries of both and the trustee gives both sets of beneficiaries notice of all material facts the trustee knows or should know.

Care is next. Probate Code section 16040 requires the trustee to administer the trust "with reasonable care, skill, and caution under the circumstances then prevailing that a prudent person acting in a like capacity would use." The trust instrument may expand or restrict that standard, and the section does not apply to investment and management functions governed by the Uniform Prudent Investor Act.

Impartiality matters when there are several beneficiaries. Under Probate Code section 16003, the trustee "has a duty to deal impartially with them," taking into account their differing interests. A trust that gives one person income for life and leaves the house to others at the end is one setting where this comes up.

Information is a continuing duty. Probate Code section 16060 requires the trustee to keep the beneficiaries "reasonably informed of the trust and its administration." A trustee also typically keeps records of the sale and of where the proceeds went, so the beneficiaries can see how the money was handled.

Beneficiaries cannot simply veto a sale the trustee has authority to make, though one who believes a duty is being breached can ask a court to step in. A contested sale or suspected misconduct is a different matter, handled by an attorney who litigates trust and probate cases.

How the Sale Process Works: From Trust Review to Closing

The work starts with paper, not with the house. Before a sale, a successor trustee usually takes care of these steps:

1. Read the trust instrument. It shows the power to sell, any consents required, and how proceeds are to be distributed.
2. Serve the required notification. When a revocable trust becomes irrevocable because a settlor died, Probate Code section 16061.7 requires the successor trustee to serve a notification on each beneficiary and on each heir of the deceased settlor, generally within 60 days after the death, or within 60 days after the trustee learns of a person entitled to it who was not known at the time. If the trustee's office was vacant at the death, the 60 days start when the new trustee begins serving. The notification includes, among other contents, each trustee's name, address and telephone number, and a statement that the recipient may request a complete copy of the trust's terms.
3. Get a date-of-death value. An appraisal as of the date of death bears on income-tax basis, on property tax and on dividing value fairly among beneficiaries.
4. Choose a way to sell. Each method is described below.
5. Close as trustee. The trustee signs in their capacity as trustee, not personally, and the deed conveys the property from the trust.
6. Deposit the proceeds. The money goes to the trust, not straight to the beneficiaries at closing, and is distributed as the trust instrument directs.

There are three broad ways to sell. A listing with a licensed real estate agent puts the house on the open market, which can draw competing buyers, in exchange for commissions, preparation and showings. A sale by the trustee without an agent saves a commission but leaves the pricing, paperwork and negotiation with the trustee. A direct sale to a buyer who pays cash and takes the house in its present condition involves less preparation, fewer showings and less dependence on a buyer's loan approval. The price usually reflects that: a direct offer is often lower than what the open market would pay, because the buyer takes on the repairs, the risk and the cost of reselling. Comparing written offers against cash offer vs listing net proceeds, meaning the price less commissions, repairs, carrying costs, loan payoffs and closing costs, is how a trustee and the beneficiaries tell which path fits. For a house in rough shape, the tradeoffs of selling a house needing repairs work the same way.

Disclosure is its own question. Under Civil Code section 1102.2, the article of the Civil Code that contains that section does not apply to sales or transfers by a fiduciary in the course of administering a trust or a decedent's estate, except that the exemption does not apply where the trustee is a natural person who is a trustee of a revocable trust and is a former owner of the property or occupied it within the preceding year. Whether that exemption applies, and whether other disclosure duties apply anyway, depends on the facts; the trust's attorney can say which.

When Court Confirmation Is — and Is Not — Required

Trust sales and probate sales follow different tracks. A trustee selling trust real property generally does not need a court to confirm the sale, because the authority comes from the trust instrument and the Probate Code.

A probate estate is different. When a house is in a probate estate rather than a trust, whether the executor or administrator needs a court's confirmation depends on the authority the court granted under the Independent Administration of Estates Act. A personal representative with full authority can generally sell by giving the interested people a notice of proposed action, a written notice describing the sale, and can proceed without a court hearing if no one objects within the time the notice allows. If someone objects, or the personal representative has only limited authority or none, the sale goes to the court for a confirmation hearing.

Under Probate Code section 10503, the court-confirmation requirements, such as publication of notice of sale, court approval of agents' and brokers' commissions, sale at not less than 90 percent of appraised value and the court's examination into the necessity for and the advantages of the sale, do not apply to a sale made with that authority.

The kind of buyer does not change any of this. A cash buyer, a financed buyer or a direct buyer is subject to the same authority, notice and court steps; the estate's process is the same whoever is buying. How selling during probate works is a separate path from a trustee's sale.

Property Tax and the Proposition 19 Exclusion

Property tax often decides whether a family keeps a house or sells it, and the rules changed for transfers on or after February 16, 2021. California generally reassesses real property to its current market value when ownership changes, and an inheritance is a change in ownership. Where no exclusion applies, the new assessed value can raise the carrying cost of holding the house while it is being sold.

Rev. & Tax. Code section 63.2 provides the parent-child and grandparent-grandchild exclusion for transfers beginning on and after February 16, 2021. A grandparent-grandchild transfer qualifies only if all of the grandchild's parents who qualify as the grandparents' children, other than stepparents, are deceased as of the date of transfer. The section treats a transfer of present beneficial ownership through a trust as a transfer, so trust property can qualify.

For a family home, the house has to have been the transferor's principal residence and has to become the child's principal residence within one year of the transfer, and the child has to file for the homeowners' or disabled veterans' exemption within a year. The exclusion also has a value limit: under the section, value above the prior taxable value plus a set amount is added to the new taxable value. The amount is adjusted over time, and the county assessor's office publishes the current figure.

Timing matters most for a seller. Under Rev. & Tax. Code section 63.2, a claim is generally due within three years after the transfer, or before the property is transferred to a third party, or before an eligible transferee stops occupying the home, whichever is earlier; a claim filed within six months after the mailing of a notice of supplemental or escape assessment issued because of the transfer is also timely. If the property has not gone to a third party, a late claim can still be considered, but any exclusion applies only starting with the lien date of the year the claim is filed. A sale to an outside buyer generally closes the window for a claim on that transfer.

The claim is filed with the county assessor, whose office handles reassessment and exclusion questions.

Basis, Capital Gains, and Federal Tax Considerations

Income tax on a sale turns on basis: the starting value that gain or loss is measured from. Under 26 U.S.C. § 1014(a), the basis of property acquired from a decedent is generally the fair market value of the property at the date of the decedent's death. The statute gives alternatives: the value at the alternate valuation date where that election is made, a value determined under the special-use valuation election, or, to the extent a particular exclusion applies, the decedent's own basis.

Trust property is covered too. Under 26 U.S.C. § 1014(b)(2), property the decedent transferred during life into a trust paying the income to the decedent, with the right reserved at all times before death to revoke the trust, is treated as acquired from the decedent. A typical revocable living trust fits that description, though whether a given trust does depends on its terms.

A sale for close to the date-of-death value may produce little or no capital gain; a sale well above it may produce gain. That is a possibility to measure, not a promised result, since it depends on the sale price, the costs of sale and what the appraisal shows. This is also where the date-of-death appraisal earns its cost.

Whether a particular trust or beneficiary owes tax, and at what rate, is a question for a CPA, an enrolled agent or a tax attorney who can review the trust's records.

Selling Inherited Property with Multiple Beneficiaries

Several beneficiaries sharing one house is the most common setting for a trustee's sale, and often the most tender one. While the house remains in the trust, the trustee, not the beneficiaries as a group, holds the authority to sell, subject to the trust instrument and the duties described above.

Beneficiaries who disagree with a proposed sale have options. They can raise concerns with the trustee, and a beneficiary who believes the trustee is breaching a duty can petition the court.

The picture changes once the house leaves the trust. If the trustee distributes it to several beneficiaries outright, they generally become co-owners, often as tenants in common, each holding a fractional share. One co-owner generally cannot sell the whole property alone. California's partition law lets a co-owner ask a court to divide the property or order it sold and the proceeds divided. A contested partition or beneficiary dispute is handled by an attorney who litigates trust and probate cases.

Where a beneficiary lives in another state, that state's law may bear on their own affairs, while the house and the trust's sale follow California law. How San Diego County sales handle transfer tax and local steps is one example of county details that can also apply.

Clear, regular updates to every beneficiary about the plan, the offers received and the estimated net proceeds tend to keep a sale on steady ground.