How to avoid losing control of a home inheritance

Trusts are nice if you receive money from one every month, but for some, they get complicated. If your client inherits real property through a trust, don’t panic; instead, review these steps to help your client obtain control of the home.

Step 1: Who are the trustor, trustee and beneficiary?

A trust is a legal entity that has three parties.

• Trustor: the person who created the trust by contributing the real property and establishing the legal terms. Also referred to as a grantor or settlor.
• Trustee: the person who will carry out the terms of the trust.
• Beneficiary: the person who will receive the benefits of the trust; in this case, most likely your client who has received real property.

An important note: these roles could be distributed only between two individuals. For example, one individual could be both the trustee and the beneficiary.

Step 2: Is it a testamentary trust or an inter vivos trust?

Your client likely received the property from either a testamentary trust or an inter vivos trust.

A testamentary trust is created at the death of the trustor; an inter vivos trust is created while the trustor is still living.

Step 3: Is it revocable or irrevocable?

Each type of trust can be either revocable or irrevocable. A revocable trust allows for the reassignment of the beneficiaries; an irrevocable trust does not.

For example, if a trust is revocable, the trustor could change the beneficiary from her son to her daughter. Trusts are assumed to be irrevocable unless they are specified to be revocable.

Irrevocable trusts can only be revoked through court.

Step 4: Are there multiple beneficiaries?

Trusts are created and used because of their tax benefits, specifically tax avoidance. However, they may cause more problems than they are worth when they name multiple beneficiaries.

Often, a well-intended mother will assign the family house to all three of her children upon her demise. When this happens, things become complicated, and this is where many long-lasting family lawsuits begin.

Step 5: If yes, you’ll need an attorney

If there are multiple beneficiaries, then it becomes very important to hire an attorney. Attorneys can be quite expensive; however, it is situations like these when they are worth their price.

Additionally, a professional appraiser may be of help to determine the value of the property.

Step 6: Buy out the other beneficiaries

Legally, each beneficiary will now be an owner of the entire property. That means each beneficiary can do mostly whatever he or she wants with nearly the entire property so long as he or she doesn’t oust the other beneficiaries.

Many people in this situation find this type of structure puts too much strain on the relationship and decide it is best for one beneficiary to buy the others out.

For example, three beneficiaries inherit the property. One beneficiary buys the ownership shares of the other two; now the first beneficiary is the sole owner of the property.

This process can also be tense, especially after the death of the beloved trustor. However, it is important for business to be treated as business.

The real estate agent can be of great service here. Each beneficiary should be paid fair market value for their share, emotions put aside.

(Does your client want to sell after the buyout? Go here.)

Step 7: If negotiations go awry, mediate

If negotiations for the buyout go poorly, mediation should be considered. Mediation provides a much more pleasant platform for finding a resolution than does traditional litigation. It is also quicker and more cost-effective.

Step 8: Avoid these common mistakes

Ultimately, avoid these common mistakes when dealing with a home trust.

• Paying too little for the buyout. A beneficiary offering a decreased price for his or her share may seem like a good deal, however, it can hurt client on the backend through capital gain taxes and incorrect depreciation.
• Not hiring competent professionals. Sometimes you really need a lawyer. This is one of those times.
• Not thinking win-win. Usually, when a home trust is involved, family is involved. In those cases, as a real estate agent, it is best to help long-term family relationships and think win-win.

(Don’t get dumped by your clients.)

Jackson Cooper is a writer and real estate enthusiast at Jensen and Company. Follow Jensen & Company on Twitter or Facebook.

Email Jackson Cooper.