What are the Responsibilities of a Trustee When Selling Real Estate? | Illinois Trust Administration
If you are a trustee responsible for the administration of a trust after the passing of a loved one, you have a fiduciary duty to act in the best interest of the beneficiaries of the trust, within the limitations and instructions laid out by the trust document.
If a trust is in place and estate planning has been done properly prior to the death of the grantor of the trust, it should not be necessary to open a probate estate. However, if the beneficiaries disagree with the actions of the trustee, the beneficiaries may open a probate case and seek to make the trustee personally liable for mismanaged assets of the estate.
Trustee responsibility is fairly cut and dry when dealing with liquid assets like a checking account. However, the trustee's responsibility becomes more complicated when dealing with non-liquid assets like real estate.
When real estate is present in an estate, the trustee must first decide whether to transfer the real estate to one of the beneficiaries. This will usually result in a reduction of the share that the beneficiary is due from the remainder of the estate's assets or a payment from the beneficiary to the estate for the value of the home. An alternative to an insider transfer is to sell the real estate on the open market and distribute the proceeds among the beneficiaries.
Regardless of what is to become of the real estate, I recommend that the trustee seek written approval from all of the beneficiaries of the trust prior to the transaction. In the absence of this written approval, one or more of the beneficiaries may later claim that the real estate was sold to a third party or transferred to one of the beneficiaries for less than market value. The beneficiary could then open a probate case and seek to hold the trustee personally liable for breach of fiduciary duty.
For example, if the market value of a home is $400,000.00 and the Trustee sells it for $300,000.00, whether to a third party or to an insider, the trustee may be personally liable for the $100,000.00 difference between market value and sale price. However, if the trustee has received written agreement from the beneficiaries prior to the sale, the trustee will be able to rest easy knowing that she is protected from any future liability.
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