Revocable Trust Sales
If you created a revocable living trust and transferred your property into it, selling is straightforward. As the grantor-trustee, you have full authority to sell. The listing agreement and contract are signed by you in your capacity as trustee. The deed is executed by the trust. Tax treatment is the same as if you owned the property individually — the Section 121 exclusion (for primary residences) still applies.
The buyer's title company will require a copy of the trust agreement (or a certificate of trust — a summary document that confirms the trust's existence and the trustee's authority without revealing the full trust terms). Your attorney prepares the certificate of trust and deed.
Irrevocable Trust Sales
Irrevocable trusts present more complexity. The trustee's authority to sell depends entirely on the trust instrument. Some irrevocable trusts grant broad investment powers including the ability to sell real estate. Others restrict the trustee's actions and may require beneficiary consent or court approval for property sales.
A key tax difference: property transferred to an irrevocable trust does not receive a stepped-up basis at the grantor's death (unlike property in a revocable trust or owned outright). This means the trust may owe significant capital gains tax on appreciated property. However, the trust can distribute the gain to beneficiaries, who may be in lower tax brackets. Tax planning is essential for irrevocable trust property sales.
Successor Trustee Sales
If the original trustee has died or become incapacitated, the successor trustee named in the trust document takes over. The successor trustee should obtain a death certificate (if the original trustee has died) and review the trust document to confirm their appointment and authority. A successor trustee certificate or affidavit may be needed for recording purposes.
Property in a revocable trust receives a stepped-up basis at the grantor's death — the new basis is the fair market value at the date of death. This can significantly reduce or eliminate capital gains on the sale. Timing the sale relative to the step-up valuation date matters. Consult your tax advisor.