Revocable living trust property generally cannot be sold outright by a beneficiary; the property must be first transferred to the beneficiary and placed in his name. However, if under the terms of the trust, the beneficiary has the right to claim trust assets for personal use, this is a simple issue of transfer. The key issue is the trust's restrictions on distributions. The trust creator's intent, whether there are multiple beneficiaries or the existence of a spendthrift clause can limit a beneficiary's ability to sell trust assets. Trust law varies by state so consider consulting an attorney if you wish to sell trust property.
Revocable Living Trust Defined
When someone creates a trust, he relinquishes ownership of the property by signing all relevant deeds and documents over to the trust and a trustee is appointed to manage and protect the trust's assets. The creator also names beneficiaries, people who benefit from the terms of the trust and receive benefits according to the terms of the trust. If the trust is revocable, it means that creator of the trust can change its terms at any time. A living trust is a trust established while the donor of the trust property is still alive. Often the creator of a revocable living trust appoints himself as trustee during his lifetime, but this is not always the case.
Most trusts are created for a specific purpose. Typically, the creator of the trust wants to help beneficiaries in specific ways. Therefore, when he creates the trust, he specifies in the declaration of the trust when and how he wants the trust’s profits and principal to be distributed to the beneficiaries. The trustee is required to administer the trust in the manner defined by the declaration. Therefore, if the declaration explicitly states that an heir or beneficiary cannot sell trust property, the trustee is not permitted to allow a beneficiary to sell the property.
A trustee is obliged to treat beneficiaries impartially. Generally, all beneficiaries are supposed to benefit equally from the trust’s assets. This means if there is more than one beneficiary, the trustee cannot transfer property for one beneficiary to sell if it hurts the other beneficiaries’ interests. The exception to this standard is if the trust declaration specifically allows the trustee to transfer trust property to individual beneficiaries.
Read More: Beneficiaries' Rights to the Bank Statements of Trust Accounts
A spendthrift clause prevents beneficiaries from transferring any portion of their interest in the trust to another party. This means the beneficiary cannot transfer his right to the trust’s profits or transfer any of the trust’s property. Most states have upheld the validity of spendthrift provisions although some have not. If your trust has a spendthrift provision, consider consulting with an attorney to ensure such a clause is enforceable in your state.
- Legal Information Institute: Estates and Trusts: An Overview
- USLegal: Revocable Living Trust Law & Legal Definition
- State Bar of Wisconsin: Revocable Living Trusts: Answering Your Legal Questions
- Free Dictionary: Declaration of Trust
- Monterey Trust: The General Duties of a Trustee and a Trustee’s Obligation to Beneficiaries
- USLegal: Spendthrift Trust Law & Legal Definition
- Oregon State Bar: Revocable Living Trusts
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.