How a successor trustee sells an apartment building in California

When a California living trust holds title to an apartment building, the successor trustee can sell it without opening a probate case. The authority comes from the trust instrument and the Probate Code, and the work is doing things in the right order: put the death on the county record, give the notices the law requires, pin down the date-of-death value, then sell, account and distribute.

This guide covers each of those steps for a building in Los Angeles County, with the statute or county office behind each one. It is written to the successor trustee. Beneficiaries and the trust's attorney will find the same steps here from their side.

Does the trust own the building, and is probate needed?

Start with the last recorded deed. If it vests title in the trustee, in words like "Jane Doe, Trustee of the Doe Family Trust dated May 1, 2009," the building is trust property. The trustee sells it, and no probate court is involved. Probate Code section 16200 gives a trustee the powers in the trust instrument, plus the statutory powers the instrument does not limit, without court authorization.

If the deed still names the person who died, in their own name, the building is not trust property on the record, even if the trust's schedule of assets lists it. That building may need a probate, or a petition under Probate Code section 850. The second route is often called a Heggstad petition, after Estate of Heggstad, a 1993 appellate case in which the court held that the trust document's own language was enough to create a trust in property still titled in the father's name, which kept it out of his probate estate. Settle this first. Every later step assumes the trust owns the building.

Two more things to check on the deed. If it names an LLC that the trust owns, the LLC is the seller, and the attorney should confirm who signs for it. And if both spouses were trustees, find out whether part of the trust stays revocable after the first death. The notice duty discussed below turns on irrevocability.

How do you become the acting trustee?

The trust instrument names the successor and the event that triggers the succession, such as the death or incapacity of the person who made the trust. When that event happens, the named successor decides whether to serve. Probate Code section 15600 describes how a named trustee accepts, and signing the trust instrument is one way. If you are still deciding, the same section lets you act to protect the property from an immediate risk of damage, such as a burst pipe in a vacant unit, without accepting the trust. If you then decline, deliver a written rejection to a beneficiary within a reasonable time.

If the trust names two or more people to serve together, read it for a clause letting one of them act alone. Without one, Probate Code section 15620 says a power held by co-trustees can be exercised only by their unanimous action. For a sale, plan on every co-trustee signing the listing agreement, the purchase contract, the escrow instructions and the deed.

Order several certified copies of the death certificate early. The Registrar-Recorder requires one with the affidavit of death of trustee, and other institutions will ask for their own.

Where does the power to sell come from?

Read the trust's powers clause first. If it gives the trustee the power to sell real property, that is your authority. If it says nothing, the Probate Code fills the gap. Section 16226 gives a trustee the power to acquire or dispose of property, for cash or on credit, at public or private sale, or by exchange, and section 16200 lets the trustee use that power without asking a court.

A trust can also limit the power. Look for a clause that requires someone's consent before a sale, gives a beneficiary a right to buy first, or leaves the building itself to a named person. The statutory powers apply only as far as the instrument does not limit them, so a sale that ignores one of those clauses is outside your authority.

Holding the power does not settle how to use it. Section 16202 says a trustee's exercise of any power is subject to the trustee's fiduciary duties. That is why the price, the buyer and the timing all have to make sense to the beneficiaries later.

The steps, in order

Some of these overlap in time. The list runs in roughly the order each step becomes possible.

1. Confirm title and gather the file. Pull the vesting deed, the trust with every amendment, and certified copies of the death certificate.
2. Accept the trusteeship. Confirm who else serves with you and whether all of you must sign.
3. Record the affidavit of death of trustee with the Los Angeles County Registrar-Recorder/County Clerk. At recording, the county requires the completed affidavit, a certified copy of the death certificate and a Preliminary Change of Ownership Report. The affidavit page covers each item.
4. File the Assessor's statement. The Los Angeles County Assessor must be notified of an owner's death within 150 days, on the Change in Ownership Statement, Death of Real Property Owner, form BOE-502-D. The Assessor requires it even when the property was held in a trust.
5. Get a new EIN for the trust. The IRS says a revocable trust that changes to an irrevocable trust needs a new EIN, and a revocable trust becomes irrevocable when the grantor dies. Open a trust bank account under that number for rents and deposits.
6. Serve the notification by trustee within 60 days on every beneficiary and every heir of the person who died. The notice and timing page has the contents and the deadline arithmetic.
7. Value the building as of the date of death. That figure sets the tax basis, described below, and it gives you a benchmark for judging offers.
8. Prepare a certification of trust for escrow and title. See the certification of trust page.
9. Run the building until it sells. Collect rent into the trust account, keep the insurance in force with the carrier told about the death, and keep records a beneficiary could follow.
10. List, negotiate and sell, within the duties covered on the trustee duties page.
11. Account to the beneficiaries. Section 16062 requires an account at least once a year, when the trust terminates and when the trustee changes, to each beneficiary who is to receive, or may in your discretion receive, current distributions. A living trust created before July 1, 1987 is generally outside this rule, with exceptions, so ask the attorney which applies.
12. Distribute once the contest window has closed and the attorney and CPA agree the trust's debts and taxes are provided for.

What the death changes for taxes: basis and Prop 19

IRS Publication 551 says the basis of property inherited from a decedent is generally its fair market value on the date of death. Gain on a sale is measured from that figure rather than from what the owner originally paid, which is why the date-of-death valuation deserves real care. If the building was a married couple's community property, the same publication says the whole property's value at the first spouse's death generally becomes the basis, the survivor's half included.

Proposition 19, operative February 16, 2021, limits the parent-to-child exclusion from reassessment to a family home or family farm, according to the Board of Equalization. A rental building passing from a parent to a child does not qualify and is subject to reassessment. That matters most when a child is weighing whether to keep the building instead of letting the trust sell it. If a parent lived in one of the units, ask the Assessor how that unit is treated.

Can you sell during the 120-day contest window?

Yes. Section 16061.8 is a deadline for anyone who wants to contest the trust. It does not tell the trustee to wait, and a trustee who holds the power to sell can list the building, accept an offer and open escrow while the window runs.

The harder questions are when to close and when to distribute. A contest that succeeds can change who the beneficiaries are, and money that has already gone out is hard to pull back. One way to handle it is to close when the buyer is ready and hold the net proceeds in the trust account until the window has closed. If anyone has already threatened a challenge, tell the attorney before you sign a listing agreement, and decide the plan together. The timing page lays out the dates with a worked example.

Your duties when setting the price and choosing a buyer

A trustee's sale needs no court confirmation, and the 90 percent floor that Probate Code section 10309 sets for confirmed probate sales does not apply to it. The Probate Code imposes duties instead. Section 16002 requires you to administer the trust solely in the interest of the beneficiaries. Section 16003 requires impartiality when there are two or more of them. Section 16040 holds you to the reasonable care, skill and caution a prudent person would use in a like capacity.

Applied to a sale, those duties look like this:

• Set the price from evidence you can show a beneficiary later: the rent roll, the operating expenses, recent sales of similar buildings nearby, and a written opinion of value or an appraisal.
• Give the market enough exposure that the price is the market's answer and not simply the first buyer's.
• Compare offers on price, deposit, contingencies, the buyer's financing and the closing date, and write down why you chose the one you did.
• Keep the beneficiaries informed. Section 16060 makes that a duty, and a beneficiary who saw the offers as they came in has less reason to question the result.

The self-dealing rule is the one to take most seriously. Section 16004 bars a trustee from dealing with trust property for the trustee's own profit, or taking part in a transaction in which the trustee has an interest adverse to the beneficiaries. If you, or one beneficiary, want to buy the building, read the duties page before anyone signs.

Shaya can give you a written opinion of value built on the rent roll and nearby sales, market the building openly or offer it quietly to buyers he finds, and put every offer in front of you in a form you can share with the beneficiaries. He is a listing agent. He does not buy buildings.

What will escrow and title ask for?

The buyer's title insurer has to be satisfied that the person signing the deed is the trustee and holds the power to sell. Have these ready:

• The recorded affidavit of death of trustee, which puts the death on the county record for the building.
• A certification of trust under Probate Code section 18100.5, signed by every currently acting trustee as an acknowledged declaration.
• The pages of the trust that name you as successor and give you the power to act in this sale. Section 18100.5 lets a person whose interest may be affected ask for those excerpts.
• Signatures from every co-trustee, unless the trust lets one act alone.
• Notarized signatures on the grant deed. The Registrar-Recorder's recording requirements call for documents to be properly acknowledged unless exempt.
• The trust's taxpayer identification number, which the certification of trust can state.

Probate Code section 18100 is the reason the buyer does not need to read the trust. A person who deals with a trustee in good faith, for value, and without actual knowledge that the trustee is exceeding or misusing a power is not bound to ask whether the power exists and is protected as if it were being properly used. The certification gives the buyer and the title company the facts they need to rely on that rule.

When does the trustee need a court petition?

The power to sell needs no court authorization, so a petition is the exception. These are the situations that call for one:

• The building is still titled in the name of the person who died. That is the section 850 petition described above, or a probate.
• The trust is unclear about who the trustee is, or whether the trustee may sell. Probate Code section 17200 lets a trustee or beneficiary petition the court about the trust's internal affairs.
• Co-trustees disagree and the trust requires them to act together.
• You or a beneficiary want to buy, and not every beneficiary gives informed consent. Section 17200's list of internal affairs includes passing upon the acts of the trustee, and approval in advance is safer than defending the sale afterward.
• A beneficiary objects to the sale itself.

When to call the trust attorney or the CPA

Shaya is a real estate agent, not an attorney or a CPA, and parts of this job belong to them. Call the attorney before you sign a listing agreement if the deed is not in the trust's name, if the trust limits the power to sell, if anyone has threatened a contest, if co-trustees disagree, or if a trustee or beneficiary wants to buy. The attorney should also review the notification by trustee before it goes out and the accounting before it is delivered.

Call the CPA about the date-of-death value and what support it needs, the trust's income tax returns, and the election on Form 8855 to treat a qualified revocable trust as part of the estate, which must be filed by the due date of the estate's first Form 1041. Bring the CPA in before the sale closes, not after.