Sale of Real Property by a Trustee in California, Part 1: Fiduciary Duties and Best Practices

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Author: Staff

Creating an estate plan allows a person to direct the distribution of their assets after their death. A will is perhaps the fundamental estate planning document, but it is far from the only way to distribute one’s assets. Creating a “living trust” allows a person to begin the distribution process while they are still alive. The person designated to administer the trust is known as the “trustee.” Living trusts might not be right for everyone’s estate plan, but California real estate investors should carefully consider them. They should also consider who can meet the legal standards for a trustee with regard to selling real property assets.

What Is a Trust?

The term “trust” can refer to a legal document and the entity created by that document. A trust document bears some similarities to a will. When a person dies, their assets become part of a legal entity known as their “estate.” A trust instrument also creates a legal entity, known as a trust.

A trust designates beneficiaries who are entitled to receive something from the assets held by the trust. This could be ongoing income from interest or rent, or proceeds from the sale of trust assets. The person who creates a trust, known as the “trustor” or “settlor,” must designate a trustee in the trust document. In a living trust, the trustor may designate themselves as trustee, but they must also designate a “successor trustee” to take over after the trustor’s death.

The main difference between a will and a living trust involves the probate court system. A will requires approval from a probate court before administration can begin. A living trust bypasses probate.

Duties of a Trustee

Much like an executor of an estate, a trustee owes fiduciary duties to the beneficiaries. These include the duty of loyalty, the duty of fair and impartial dealing, and the duty to preserve trust assets. Specific duties include providing regular accounting to beneficiaries.

Many living trusts are “revocable,” meaning that the trustor can revoke or modify the trust’s terms during their life. A trustor acting as trustee of a revocable trust is not necessarily bound by the full range of fiduciary duties as trustee, since they can modify the trust’s terms as trustor.

Sale of Real Property by a Trustee

A trustee may sell real property, subject to the authority granted to them in the trust document. They must act solely in their capacity as trustee, and in the interest of the beneficiaries.

A successor trustee seeking to sell real property on behalf of a trust may have to sign an affidavit indicating that they have succeeded the original trustee. In any case, a trustee should obtain as comprehensive a chain of title as possible, to ensure that the trustor conveyed good title to the trust. An appraisal helps the trustee establish, in the event of a dispute with beneficiaries, that the sale provided a fair market value.

The trustee of a revocable trust is not obligated to provide the Transfer Disclosure Statement (TDS) required in most California residential real estate transactions, provided that the trustee is a “natural person,” meaning not a corporation or other organization. This means that neither a trustee nor a trust may be held liable for failure to disclose information contained in a TDS.

If you are a trustee that needs to sell a property, contact a real-estate agent to help you.

More Blog Posts:

Duties of a California Real Estate Property Manager, Titles and Deeds, October 22, 2018

The Duties of a California Real Estate Syndicator, Titles and Deeds, July 30, 2018

What Is the Difference Between Real Estate Syndicates and Real Estate Investment Trusts in California? Titles and Deeds, July 12, 2017