Trust sales: things can get complicated
Selling homes held by trusts comes with a few hoops to jump through. You can’t just call an agent, sign a listing agreement and pop the property on the market.
The first question to ask is who has the power to sell the property, says lawyer Carolyn Ranson of Smith and Partners Lawyers.
Are they the beneficiaries or independent/ professional trustees? All the trustees must agree before the property can be sold and the transaction needs to be properly documented, says Ranson.
When trustees sell a trust-owned property they may need to get a market valuation from a registered valuer to cover themselves against claims.
Section 28 of the Trustees’ Act specifies that trustees need to consult a qualified person for valuation. By doing so, they avoid being guilty of a breach of trust. If it’s proved the trustee sold a loss, damages can be awarded to the beneficiaries.
If the trust property was lived in by parents, who have died, what happens depends on the trustees. “They are the ones in charge of the trust property,” says Ranson. “Just because someone dies, doesn’t mean the trust will be wound-up.”
The course of action is usually dictated by the memorandum of wishes, says Ranson. The memorandum isn’t binding, but trustees do need to be aware that the trust could be at risk of being deemed a sham if they deviate.
In some cases, however, trusts are in fact wound up and the property is transferred to the beneficiaries, says Ranson. But that isn’t always the case.
It’s not uncommon for beneficiaries to buy the property. However, the trustees have a duty to be fair.
If trustees are concerned as to whether the move is even-handed they can apply to the courts for directions.
It’s a good idea to use a trust lawyer for trust-owned properties. A trust lawyer will ensure, for example, that the correct vendor names are on the sale and purchase agreement and will limit warranties that could be difficult for a trust, such as whether there have been alterations. The lawyer will update the trusts asset register following the sale, says Ranson.
Thanks to a 2015 change to tax law, all trusts must have an Inland Revenue Department number.This can take several weeks. Trust properties fall under Residential Land Withholding Tax, also known as the Bright-line Test. It means if the property is bought and sold within two years, the capital gain is taxed.