Understanding Trusts in Real Estate: Trustees vs. Successor Trustees
When selling a home that’s owned by a trust, one of the first questions we ask in escrow is
“Who has the authority to sign?” The answer depends on the trust itself and who is named as trustee or successor trustee. Understanding these roles (and how they differ) is essential to ensuring a smooth closing.
Trustee vs. Successor Trustee
– Trustee: This is the individual (or individuals) originally appointed in the trust to manage and make decisions regarding the trust’s assets. If the trustee is still living and able to act, they are typically the ones who will sign all documents related to the sale of the property.
– Successor Trustee: A successor trustee only has authority to act when the original trustee(s) can no longer serve due to death, incapacity, or resignation, as spelled out in the trust document. It’s important to note that a successor trustee cannot simply “step in” at any time; their authority is triggered by specific circumstances defined in the trust.
Resignation of Trustee: Sometimes, an original trustee may no longer wish to serve, even if they are still alive and capable. In that case, they may formally resign from their role as trustee, following the process outlined in the trust. This usually requires a written resignation, which must be provided to the successor trustee and sometimes to the beneficiaries. Title companies will request a copy of the resignation document along with the trust and amendments to confirm that authority has properly transferred to the successor trustee.
When the Trustee Becomes Incapacitated
If the original trustee is living but no longer has the capacity to manage the trust, the successor trustee may step in to act. In this case, title will require proof of incapacity, which is usually defined in the trust itself.
Common requirements include:
-One or two doctors’ letters certifying the trustee’s incapacity.
-Another form of documentation specifically outlined in the trust.
The successor trustee must provide this documentation along with the trust and amendments so the title company can confirm that the transition of authority was valid under the terms of the trust. Without this, the successor trustee cannot sign for the sale.
Why Power of Attorney Usually Can’t Be Used
One common misunderstanding is that a power of attorney (POA) can be used in place of a trustee or successor trustee. In most cases, trusts do not permit this. A trust is its own legal entity, and the authority to manage its assets must come directly from the trust document itself, not from an outside POA. This distinction protects the trust and ensures its assets are managed according to the original intentions of the person who created it.
Why Title Needs the Entire Trust
When a successor trustee is signing on behalf of the trust, the title company must review the complete original trust and all amendments. This is not just red tape; it’s a necessary step to verify:
-That the trust is valid and properly executed.
-Who the current acting trustee or successor trustee is.
-What powers are granted to that trustee, including the authority to sell real property.
-That no later amendments change or limit that authority.
Without the full trust and amendments, the title company cannot insure the transaction, which would prevent the sale from closing.
Why This Matters for Sellers
If you are selling a home that is owned by a trust, it’s important to understand:
1. Only the acting trustee (or successor trustee, when applicable) can sign documents.
2. Powers of attorney generally don’t apply to trust assets.
3. If the trustee is incapacitated, the successor trustee must provide proof as required by the trust.
4. Title must review the entire trust to confirm authority to sell.
By preparing these documents early and understanding the trustee roles, you can avoid delays and keep your escrow moving forward smoothly.
