Selling a house owned by a trust
Q. A few years ago my elderly parents put their home into a trust. They are both trustees, along with me and my two siblings (one of whom lives overseas). They are now looking to move into a retirement facility as they are becoming quite frail and are finding it increasingly difficult to manage the house and garden. We are now faced with putting the house on the market as we are keen to sell it before winter so my parents can be settled in their new home. Is there anything we should know about selling as trustees?
A. If you don’t approach it in the right way, selling a property that’s part of a trust can get extremely complicated. It’s great that you are looking into the process before you start.
Each trust is different and operates on the conditions set out in the trust deed. So the first thing you should do is talk to the trust’s lawyer – ideally the one who was involved in setting up the trust to start with – as they will have a good understanding of your family’s particular circumstances. They will be able to check the terms of the trust to ensure whether or not its assets can be sold (in some trusts, assets are protected from sale).
You should check that the trust has an IRD number as you will need one to sell the property. There may also be tax implications if you sell the property – this depends on when it was purchased and whether it is the main family home. You should check any tax implications with an accountant.
If the property can be sold, all the trustees, even those overseas, must agree on this course of action. The lawyer will draw up a resolution that documents the decision and this must be signed by all the trustees.
Once this process is in train you can start thinking about how to sell. If you are considering selling privately, you will need to have it assessed by a registered valuer (this is a requirement of the Trustee Act). While selling privately can save you money on commission, selling a property can be complex and you need to understand the risks.
If you decide to use a real estate agent, make sure all the trustees are in agreement about which agent you choose. If it’s logistically or practically difficult for all of you to be involved, it’s a good idea to nominate one or two trustees to be in control of the process.
Ensure they document all conversations and decisions so you have records to refer back to later. Again, don’t be shy about asking your lawyer for advice.
While you have a moral responsibility to do the best you can towards your parents and other family members, as a trustee you also have a set of legal obligations. For example, if you allowed the trust property or other assets to be sold at a very low price, you could be liable for breaching your duty of diligence and prudence.
Even if all the trustees are not involved in selecting the real estate agent and discussing the method of sale and the marketing, all of you must sign the agency agreement to list the property. This is the contract between the trust and the real estate agent that sets out how the property will be marketed and what the commission will be.
Again, the signing of this must be documented in trustee resolutions. While this may seem like a lot of bothersome admin, you need to follow the exact rules of your trust in case something goes wrong later.
When the property is sold – again, when all trustees are happy with the price and conditions – all the trustees must sign the sale and purchase agreement. The buyer’s deposit will be held in a lawyer’s or real estate agent’s trust account. After settlement, the trust’s assets register should be updated to reflect the sale.
After settlement you need your lawyer or conveyancer to hold the sale proceeds (less any fees) in the family trust’s bank account. The proceeds will remain in the family trust account until they are distributed in accordance with the trust deed.
Selling a family property with multiple trustees can be a trying time on many levels and people don’t always act as you might hope or expect. A bit of planning, preparation and sound legal advice will help you navigate any choppy waters.
❚ Kevin Lampen-Smith is the chief executive of the Real Estate Authority (REA), the independent government agency that regulates the New Zealand real estate industry. If you have a question about buying or selling property, send it to susan.edmunds@stuff.co.nz For independent advice on buying or selling property, check out settled.govt.nz.