Table of Contents
Key Takeaways
Why This Question Comes Up in California Trust Administration
Can a Trustee Sell Trust Real Estate to a Beneficiary?
Risks and Common Sources of Litigation
- Selling Below Fair Market Value
- Skipping an Appraisal
- Providing Favorable Terms to One Beneficiary
- Failing to Follow Standard Real Estate Formalities
- Risky Seller Financing
- Ignoring Better Offers
How Beneficiaries Can Protect Their Rights
Related Resources
FAQ
How The Grossman Law Firm Can Help
Key Takeaways
- A trustee may sell trust real estate to a beneficiary, but only if the transaction is handled exactly as it would be with an unrelated buyer.
- Trustees must follow California fiduciary duty standards, including impartiality, fair market value, and full disclosure.
- Sales that favor one beneficiary can lead to trust litigation, including claims for breach of fiduciary duty.
- Common problems include discounted pricing, skipped appraisals, special concessions, and ignoring higher outside offers.
- Beneficiaries harmed by an improper sale can seek legal remedies under the California Probate Code.
Why This Question Comes Up in California Trust Administration
Real estate is often the most valuable asset in a California trust, and disputes over its sale are among the most common causes of litigation in the state. At The Grossman Law Firm, we routinely represent beneficiaries who believe a trustee mishandled a sale.
Understanding how California law treats these transactions is essential for evaluating whether the trustee acted appropriately.
Can a Trustee Sell Trust Real Estate to a Beneficiary?
Yes. A trustee can sell trust property to a beneficiary. However, the trustee must treat the sale as if it were occurring between two strangers. Under California Probate Code §§16002, 16003, and 16004, the trustee must:
- Act impartially among beneficiaries.
- Avoid self-dealing or actions that appear self-interested.
- Administer the trust solely for the benefit of the beneficiaries.
- Maintain loyalty to all beneficiaries equally.
Suppose the trustee gives one beneficiary a financial advantage, intentionally or not. In that case, the trustee may be liable for breach of fiduciary duty. It is where disputes frequently arise.
Risks and Common Sources of Litigation
Selling Below Fair Market Value
A trustee must maximize the value of trust assets. Selling real estate for less than fair market value harms the other beneficiaries and violates the trustee’s duty to deal impartially. A current appraisal is typically necessary to confirm value.
Skipping an Appraisal
Without a professional appraisal, the trustee cannot demonstrate that the sale price reflects the property’s market value. That creates an opening for beneficiaries to challenge the sale.
Providing Favorable Terms to One Beneficiary
Fiduciary duty prohibits offering special treatment to one beneficiary. Examples include:
- Allowing repeated extensions
- Funding repairs to help the beneficiary qualify for a loan
- Underpricing the property to accommodate the beneficiary
- Giving the beneficiary early possession or use of the home
Any preferential treatment can be grounds for litigation.
Failing to Follow Standard Real Estate Formalities
A trustee must handle the transaction as a typical real estate sale. Problems arise when the trustee bypasses:
- A properly drafted purchase agreement
- Required disclosures
- Documentation of contingencies
- Proper notice to beneficiaries when required by the trust
Cutting corners suggests the trustee may not be acting impartially.
Risky Seller Financing
If the trustee offers financing to the beneficiary, the terms must protect the trust. Inadequate interest rates, insufficient down payments, or unsecured notes can all create liability.
Ignoring Better Offers
A trustee may breach fiduciary duty if they ignore higher or faster offers from third parties in order to sell to a beneficiary. Even if the trust allows a sale to a beneficiary, the trustee must still act in the trust’s best financial interests.
How Beneficiaries Can Protect Their Rights
If you believe the trustee mishandled a sale or favored a beneficiary, you may have several legal remedies under the California Probate Code, including:
- Demanding an accounting
- Seeking a surcharge (financial compensation)
- Undoing or voiding the sale in some circumstances
- Petitioning to remove the trustee
- Filing a breach of fiduciary duty action
The timeline for taking action is essential. Beneficiaries should not wait once they suspect a problem, as deadlines apply.
Related Resources
- Can a Trustee Be Removed for Mishandling Assets?
- Do Beneficiaries Have to Pay Taxes?
- 20 Ways Your Trustee Can Be Breaching Their Fiduciary Duties
- Can’t Afford a Probate or Trust Attorney?
FAQ
Can a trustee give a beneficiary a discount on the property?
No. Selling below fair market value violates the trustee’s duty to act impartially and in the best interests of all parties. A proper appraisal is essential.
Does the trustee need consent from all beneficiaries?
Consent may be required if the trust document mandates it. Even when not required, obtaining written consent can reduce litigation risk.
Can beneficiaries challenge the sale after it closes?
Yes. If the trustee breached fiduciary duties, beneficiaries can seek financial compensation or, in rare cases, ask the court to unwind the transaction.
What if the beneficiary is the only one interested in buying?
The trustee may proceed, but only after verifying the property’s value and documenting that no better offers were available.
How The Grossman Law Firm Can Help
At The Grossman Law Firm, we help beneficiaries and heirs throughout California enforce their rights in probate and trust litigation.
Call (888) 443-6590 or fill out our Get Help Now form. Our Intake Specialists can evaluate your case at no cost to you. Qualifying matters will be scheduled for a Free Phone Consultation with Attorney Scott Grossman.
Originally Published Jun 18, 2018