Key Takeaways
- As the beneficiary of the trust, you will need to understand the terms and conditions of the trust document and how it governs the property.
- Consult with the trustee or attorney who created the trust for guidance on your rights and responsibilities as a beneficiary of the trust.
- Based on the trust agreement, you may have certain rights, such as the right to use or occupy the property, but may not have the power to sell or transfer it without the trustee’s permission.
- It’s important to review the terms of the trust, understand your rights and consult with the trustee and/or attorney, before making any decisions regarding the inherited property.
What You Need to Know About Inheriting a House in a Trust in California
You received a letter informing you that you’re the beneficiary of a house in a trust.
What does that mean, and what are the next steps you need to take?
Inheriting a house in a trust in California is much faster and simpler than inheriting through a will and testament. We’ll walk you through the steps after your loved one’s death and what you do to claim the house.
We’ll also look at options for what to do with an inherited home from a trust.
What’s the Difference between Trusts and Wills?
Estate planning is creating a plan for what will happen to someone’s belongings after they pass away or if incapacitated. One of the most valuable assets in estate planning is someone’s house.
People often create trusts or last wills and testaments to outline their final wishes for their home and other belongings.
Here’s an overview of the difference between inheriting property from parents in a trust versus a last will and testament.
1. Inheriting a House in a Last Will and Testament
A last will and testament is a legal document that outlines someone’s final wishes. The will includes who receives the house and property. Claiming a house from a last will and testament takes six months on average, sometimes longer if there are legal issues like someone contesting the will.
To claim the house from a will, you go through probate court. The probate court uses the assets in the last will to settle any remaining debt before distributing the belongings according to the will.
Once the court processes the will, you can use the probate will to transfer your name onto the house’s deed.
Learn More: Can You Sell a House During the Probate Process?
2. Inheriting a House in a Trust
A living trust is a legal arrangement a person (the settlor) makes with a trusted individual (trustee). The settlor gives the trustee legal power to make decisions about the settlor’s belongings. This would mean the trustee holds the house’s legal title in a trust and can use it to make legal decisions about the property.
The trustee uses this power when the settlor can no longer make decisions for themselves or they pass away. Then, the settlor trusts the trustee to act on their last wishes, like handing over the property to the intended beneficiaries, like children or grandchildren.
The benefit of a living trust is that the beneficiaries receive the inherited property held in a trust within days or weeks. The time-frame depends on how long the trustee takes to distribute the belongings to the beneficiaries.
Sometimes the trustee and the beneficiaries are the same people, like when a parent asks their son or daughter to be the trustee for their house, but also passes the house to that child.
What Happens to a House in a Trust After Death in California?
When the settlor dies, the trustee becomes the temporary legal owner of the property until they distribute it to the beneficiaries. However, sometimes the house’s owner is both the settlor and the trustee.
Settlors make this arrangement for more control over the house while still living and to simplify inheriting a house after a death.
If the settlor is the trustee, then a successor trustee is appointed after the primary trustee passes. If you’re the successor trustee, you will sign an Acceptance of Trusteeship to accept the role assigned by the settlor.
When the settlor dies, the trustee becomes the temporary legal owner of the property until they distribute it to the beneficiaries.
Doug & Andrea Van Soest
The trustee now has 60 days to contact beneficiaries in the trust. If you aren’t the trustee, expect to receive the following details from the trustee:
- The settlor’s name and the trust’s date
- The trustee’s contact information
- Where the trustee will administer the trust
You could request a complete copy of the trust if you want to look over the details of your inheritance. Once you’ve received this notice, you have 120 days to bring forward any concerns about the trust. If you ask for a copy of the trust, you’ll have 60 days to contest the it.
The trustee will also contact the assessor’s office within 150 days so the office can calculate any required property taxes. They’ll also file any necessary federal taxes for the property and pay those taxes within nine months after the settlor’s death.
Usually, the trustee will assess the house’s value and take care of any outstanding debt, liens, and mortgages using other assets in the trust. Then, the trustee will distribute the remaining assets and house to the beneficiaries according to the terms of the trust.
What Happens if You Inherit Property from a Trust?
Usually, the trustee can administer your inheritance within days or weeks of the settlor’s death. This means you will receive the legal paperwork necessary for filing a deed in your name and becoming the legal owner of the house.
“I inherited a house. How do I put it in my name?”
You use the legal documents from the trust and a death certificate to file a deed in your name.
Usually, the trustee can administer your inheritance within days or weeks of the settlor’s death.
Doug & Andrea Van Soest
However, there might be delays.
For example, the trustee might have to sell assets to pay taxes or bills, or the trustee needs extra time to calculate the value of other assets in the trust.
You might also not receive the house immediately if the trust has other stipulations, like saying you will receive the property after another person’s death, such as a relative living in the house.
Here are some of your rights as a beneficiary of a house in a trust:
- You must be informed about the trust
- You are allowed to receive a copy of the trust
- You can request trust accounting’s about the property
- You can hold the trustee accountable to the terms of the trust
How Long Can a House Stay in a Trust after Death in California?
Trusts remain legally active until the trust defines the end. Usually, the terms include waiting till children turn a certain age or life events occur.
However, according to the Rule of Perpetuities, the maximum length of time a trust can stay open is 21 years after the death of the last person alive when the trust was created.
This rule is rather vague and up for debate. That’s why it usually doesn’t come into play for most trusts. Instead, the trustee and beneficiaries resolve the trust according to the legal agreement’s terms.
Therefore, you have the time given within the trust to claim your inherited house from the trust. On average, the trust closes within a year after the settlor’s death.
“What happens if you don’t want the house? Does it stay in the trust till the trust ends?“
If you disclaim the inheritance, the house passes to the next beneficiary. You won’t have a say in who they are. The property passes along as if you weren’t a beneficiary, so you lose any legal rights to the property.
The process of disclaiming an inheritance is lengthy and requires considerable paperwork. So, consider other options before disclaiming the house because you don’t want it or feel it’s too costly.
For example, you can sell it through a home buyer who can make a fast and convenient sale with a minimal financial burden.
Learn More: Should You Sell your Inherited House? (Pros & Cons)
Do You Pay Inheritance Tax on a House Left in a Trust?
“If you inherit a house from a trust, is it taxable?”
California doesn’t have an estate tax. So, all you are responsible for with your inherited house is capital gains. However, you could be responsible for a federal estate tax if the estate is valued at $12.06 million or more.
California doesn’t have an estate tax. So, all you are responsible for with your inherited house is capital gains.
Doug & Andrea Van Soest
When you receive an inheritance, whether by trust or will, you pay taxes on any profit rather than the principal amount. This is because the settlor already paid taxes on the principal when they first purchased the property.
If the settlor was behind on taxes, the trustee would likely take care of back taxes using other trust assets before handing it over to you. Then, you would be responsible for any new taxes once you receive the house from the trust.
For example, if the settlor purchased the house for $300,000, they paid taxes on a $300,000 home. However, if you sold the house for $500,000, you are responsible for taxes on the $200,000 profit.
What Can You Do with a House in a Trust?
After inheriting a house from a trust, it’s yours to use however you want unless the trust stipulates its use. Assuming no strings were attached to the inheritance, you have several options for using the house.
1. Live in the House
If you can afford any remaining mortgage payments and the upkeep, you can keep the house as a primary residence. However, keep in mind that it may need considerable repairs before you can move in, depending on how long it sat before you received it.
If you already have a house, you can keep it as a vacation home or share it with other beneficiaries who inherited it.
2. Rent the House
You can rent if you want to keep the house but don’t want the financial burden. Using the house as a rental provides an income stream for paying upkeep costs and taxes.
If the house requires too many repairs or isn’t very marketable, you might not be able to afford all costs on the rental income alone. You would be more financially stable if you sold the house and used the sale profits to purchase a more reliable rental home.
3. Sell the House
Selling the inherited house relieves any financial burden from attached mortgages and maintenance. Additionally, you’ll have more flexibility in how you use the profits, like paying off the mortgage (unless it doesn’t have a mortgage) of your existing home or giving the money to the settlor’s favorite charity in honor of the loved one.
Selling the house relieves any financial burden from attached mortgages and maintenance. Additionally, you’ll have more flexibility in how you use the profits.
Doug & Andrea Van Soest
Selling an inherited house the traditional way with a realtor is a lengthy and costly process. That’s why SoCal Home Buyers offers a different solution. Our home-buying process takes the stress out of the emotional process so you can quickly sell it to a group of empathetic agents. You can receive cash in as little as seven days without repairing or marketing the house.
If you’re not sure about selling your inherited home, use this handy article to help make an informed decision:
Should You Sell your Inherited House? (Pros & Cons)
Are You Inheriting a House in a Trust in California?
SoCal understands that inheriting a home is emotional, and we are here to support you through your tough decisions. In addition, we offer a quick and convenient process for selling your house fast to ease the financial burden, especially if the home requires considerable repairs or has existing liens.
Contact us to get a no-obligation offer for your inherited property.
