Can an Heir Sell Property When the Title Is in a Revocable Living Trust?

By John Cromwell

Revocable living trust property generally cannot be sold outright by a beneficiary; the property must be first transferred to the beneficiary and placed in his name. However, if under the terms of the trust, the beneficiary has the right to claim trust assets for personal use, this is a simple issue of transfer. The key issue is the trust's restrictions on distributions. The trust creator's intent, whether there are multiple beneficiaries or the existence of a spendthrift clause can limit a beneficiary's ability to sell trust assets. Trust law varies by state so consider consulting an attorney if you wish to sell trust property.

Revocable living trust property generally cannot be sold outright by a beneficiary; the property must be first transferred to the beneficiary and placed in his name. However, if under the terms of the trust, the beneficiary has the right to claim trust assets for personal use, this is a simple issue of transfer. The key issue is the trust's restrictions on distributions. The trust creator's intent, whether there are multiple beneficiaries or the existence of a spendthrift clause can limit a beneficiary's ability to sell trust assets. Trust law varies by state so consider consulting an attorney if you wish to sell trust property.

Revocable Living Trust Defined

When someone creates a trust, he relinquishes ownership of the property by signing all relevant deeds and documents over to the trust and a trustee is appointed to manage and protect the trust's assets. The creator also names beneficiaries, people who benefit from the terms of the trust and receive benefits according to the terms of the trust. If the trust is revocable, it means that creator of the trust can change its terms at any time. A living trust is a trust established while the donor of the trust property is still alive. Often the creator of a revocable living trust appoints himself as trustee during his lifetime, but this is not always the case.

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Trust Purpose

Most trusts are created for a specific purpose. Typically, the creator of the trust wants to help beneficiaries in specific ways. Therefore, when he creates the trust, he specifies in the declaration of the trust when and how he wants the trust’s profits and principal to be distributed to the beneficiaries. The trustee is required to administer the trust in the manner defined by the declaration. Therefore, if the declaration explicitly states that an heir or beneficiary cannot sell trust property, the trustee is not permitted to allow a beneficiary to sell the property.

Multiple Beneficiaries

A trustee is obliged to treat beneficiaries impartially. Generally, all beneficiaries are supposed to benefit equally from the trust’s assets. This means if there is more than one beneficiary, the trustee cannot transfer property for one beneficiary to sell if it hurts the other beneficiaries’ interests. The exception to this standard is if the trust declaration specifically allows the trustee to transfer trust property to individual beneficiaries.

Spendthrift Clause

A spendthrift clause prevents beneficiaries from transferring any portion of their interest in the trust to another party. This means the beneficiary cannot transfer his right to the trust’s profits or transfer any of the trust’s property. Most states have upheld the validity of spendthrift provisions although some have not. If your trust has a spendthrift provision, consider consulting with an attorney to ensure such a clause is enforceable in your state.

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How to Protect Wealth With Trusts

References

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Amending an Irrevocable Trust Agreement & Uniform Trust Code

Trust law varies based on the state where the trust is located. The Uniform Trust Code (UTC) is a proposed law meant to be enacted across the country to promote legal consistency regarding trusts. The UTC has been enacted in 23 states and covers most trust issues, including how to amend an irrevocable trust agreement. Under the UTC, an irrevocable trust agreement can be amended when the beneficiaries and creator agree to an amendment or when there is a significant change in circumstances surrounding the trust. When attempting to amend an irrevocable trust agreement, consider consulting with a licensed attorney.

How to Create a Valid Living Trust in Illinois

A living trust can allow the creator of the trust to use the trust property during his lifetime, and when the creator dies, the trust assets can be immediately transferred to the creator’s beneficiary without the property having to go through probate. To create a valid living trust in Illinois, you need to draft a declaration that establishes the terms of the trust and all of the relevant parties. This declaration does not need to be filed with a court or clerk for the trust to be valid.

Can a Living Trust Protect a Home From a Lawsuit?

A living trust refers to any type of trust you create during your lifetime rather than having it take effect upon your death. Transferring the title of a home to a living trust will only protect it from a lawsuit judgment if the terms of the trust are irrevocable. However, most state trust laws allow attachment of the home by judgment creditors if the transfer is fraudulent.

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