In California real estate transactions, the involvement of trusts has become increasingly common as part of effective estate planning. As an escrow company, we handle many transactions where the seller of the property is a trust. It’s important for all parties to understand how the distribution of proceeds works and what documentation is required to ensure a smooth and compliant closing.
Understanding Trusts in a Real Estate Transaction
A trust is a legal entity created to hold assets for the benefit of certain individuals or entities, known as settlor(s) or beneficiaries. When a property is owned by a trust, it is the trustee— the person managing the trust—who has the signing authority to sell the property. If the original trustee has passed or is incapacitated, it is successor trustee who then has authority to execute documents.
Distributing Proceeds to a Trust
Once the transaction closes and within 48 hours, the net proceeds from the sale would be disbursed directly to the trust, not to the individual trustee(s) or beneficiaries. Here’s how that typically works:
- Trust Payee Name
The disbursement check or wire is made payable to the name of the trust as listed on title (e.g., “The John Doe Living Trust dated 1/1/2010”). - Bank Account in the Name of the Trust
It’s essential that the trust has a bank or brokerage account in its own name to receive funds. Escrow will request wire instructions or a voided check reflecting the trust’s account name and routing details. - Tax Reporting
Escrow will also prepare IRS Form 1099-S, under the trust’s taxpayer identification number (TIN/EIN).
Key Escrow Requirements When a Irrevocable Trust is Involved
Before distributing any proceeds to a trust, escrow must acquire:
- Certification of Trust
California Probate Code §18100.5 allows the trustee to provide a Certification of Trust. This certification demonstrates:- The existence of the trust
- The trustee’s authority to act
- The powers of the trustee (including to sell real property)
- The trust’s taxpayer identification number (TIN/EIN
- Trust
A complete copy of the trust agreement along with any amendmentsEscrow will require valid identification from all acting trustees. If there are multiple trustees, all may need to sign closing documents unless the trust permits a single trustee to act independently. - Successor Trustee IdentificationEscrow will require valid identification from all acting trustees. If there are multiple trustees, all may need to sign closing documents unless the trust permits a single trustee to act independently.
Special Considerations
- Irrevocable vs. Revocable Trusts
Revocable trusts are more straightforward in escrow, as the grantor is typically still alive and acting as trustee. With irrevocable trusts, especially after the grantor’s death, such as the key escrow requirements as listed above. - Beneficiaries
Proceeds are distributed to beneficiaries after escrow closes and outside of escrow under the terms of the trust.
As your escrow partner, we work diligently to coordinate with sellers, trustees, title companies, and real estate professionals to ensure all necessary trust documentation is collected, and funds are disbursed properly and securely.
If you’re considering selling a property held in a trust—or if you’re an agent representing such a transaction—feel free to contact us early in the process. Our experienced escrow officers are here to guide you every step of the way.
