Navigating a Real Estate Transaction Where a Trustee Is Deceased

Real Estate Transaction Where a Trustee Is Deceased

In real estate transactions, it’s not uncommon for property to be held in a trust. Trusts offer a number of benefits, including estate planning and avoiding probate. However, when one of the trustees or trustors are deceased,  the process can become more complicated.  Understanding the steps and documentation required in such scenarios is critical to a smooth and successful closing.

Understanding the Basics

A trust is a legal entity created to hold assets for the benefit of certain individuals or entities (beneficiaries). The trustee(s) are responsible for managing the trust and have the authority to sign legal documents, including those necessary to sell real property.

When a property held in a trust is being sold, the escrow company and/or title company will require evidence that the trustee has the legal authority to act on behalf of the trust. This is typically done by reviewing the trust agreement, trust amendment,  or a certification of trust.

What Happens When a Trustee Is Deceased?

If one or more of the trustees or trustors named in the trust has passed away, escrow reviews how this affects the trust’s authority structure. Key questions include:

1. Does the trust agreement allow the remaining trustee(s) to act alone?
2. Are there additional Co-Trustees?
3. Is there a successor trustee who now steps in?

These questions must be answered through documentation.

Required Documentation for Escrow

The following documents are generally required when one of the trustees is deceased:

1. Certification of Trust (or Trust Abstract):
   1. This document summarizes the trust’s terms without revealing all its contents. It must state who the current acting trustee(s) are and whether they have authority to sell real property.
   2. It should also state whether the trust requires unanimous trustee action or if any one trustee can act alone.
2. Death Certificate of the Deceased Trustee:
   1. Escrow will need an official death certificate to confirm the trustee’s passing and verify the date of death.
3. Affidavit of Death of Trustee:
   1. Should be recorded with the county recorder’s office, this affidavit formally documents the death of the trustee and is required by the title company as part of the chain of title.
4. Title Company Review:
   1. Title must be able to confirm that the signing trustee(s) have full authority to convey title. If the trust requires two trustees to act and one is deceased, a successor trustee may need to be appointed before proceeding.

Escrow’s Role and Responsibilities

The escrow company acts as a neutral third party, ensuring that:

• All required documentation is collected and  reviewed.
• The authority to sign and convey title is established
• The title company is satisfied with the documentation provided, so the title insurance policy can be issued without exception.
• All closing funds are issued to the trust

Escrow officers collaborate closely with the title officer, the seller’s real estate agent, and, if needed, the seller’s attorney to resolve any trust-related complications.

Common Challenges and How to Avoid Delays

• Unavailable Trust Documents:  Be sure to have complete copy of the trust & amendments. If they are not available atter a trustee dies, legal counsel may need provide assurances and/or affidavits about trust which can cause delays.
• Successor Trustee Resignation/Appointment:  If a successor trustee cannot act but has not formally resigned,  execution of documents will be delayed until the resignation has been signed.
• Outdated Trust Certification: Sellers should provide an updated certification of trust to avoid discrepancies with title or escrow.

Best Practices for a Smooth Transaction

1. Get Documents Early: Encourage sellers to provide the trust documents and death certificate upon listing the property.
2. Recommend Legal Review if Needed: Escrow cannot give legal advice; if questions arise regarding trustee authority, legal counsel should be consulted.

Conclusion

Working with a seller who holds property in a trust where one or more of the trustees/trustors are deceased requires careful coordination and proper documentation. From the escrow company’s perspective, the priority is to ensure the trust has the legal capacity to sell the property and that title can be transferred cleanly. With clear communication and timely documentation, even complex trust scenarios can end in successful closings.