Successor trustee duties when the trust sells a building

A successor trustee selling a building owes the beneficiaries loyalty, impartiality and prudent care, and those duties decide what a defensible price, a defensible buyer and a defensible timeline look like. Probate Code section 16202 says the exercise of any trustee power, the power to sell included, is subject to the trustee's fiduciary duties.

No court reviews a trustee's sale in advance, so no judge will tell you the price was fine. The beneficiaries can ask that question afterward, and the answer is whatever your file shows.

Which duties apply to a sale?

How do the duties shape the price?

The Probate Code gives no pricing formula for a trustee. What prudence and loyalty require is an informed price, reached on evidence you could hand a skeptical beneficiary. For an apartment building that means the rent roll and leases, the operating expenses, the repairs the building needs, recent sales of similar buildings nearby, and a written opinion of value or an appraisal.

The date-of-death valuation is a reference point, not a price. It answers a tax question as of one day. The market on the day you list may be different, and the building may be too, if a unit turned over or a roof failed in the meantime.

Rent regulation belongs in the price. For a building in the City of Los Angeles, look it up on the Los Angeles Housing Department's RSO property search before you set a number. The Rent Stabilization Ordinance covers rental units first built on or before October 1, 1978, and a buyer will price the rents it allows.

Market exposure matters as much as the number. A building offered to the whole market for a reasonable period gives you a price that the market set. A quiet sale to a few buyers can still be the right call, for instance where the tenants would be unsettled by a public listing, but write down why you chose it and what the buyers offered. In this setting, the open listing is the easier price to defend.

Choosing between offers

The highest number is not automatically the prudent choice. Compare every offer on these points:

• Price, and what the buyer expects to renegotiate after inspections.
• Deposit size and when it becomes nonrefundable.
• Contingencies for inspection, appraisal and loan approval, and how long each runs.
• The buyer's proof of funds or lender letter.
• The closing date, measured against the trust's own timeline, including the contest window described on the notice and timing page.

A lower offer with a large deposit, no loan contingency and a short escrow can be the prudent choice over a higher offer that depends on a loan. Put the comparison in writing and send it to the beneficiaries before you accept. Section 16003 is the reason to write it for all of them, not only the one who calls most often.

Shaya can lay the offers side by side in a form you can forward to the beneficiaries as is, and he can tell you what each buyer's terms mean for the chance of closing. He represents the trust as seller. He does not buy buildings.

What counts as self-dealing?

Section 16004 bars a trustee from using or dealing with trust property for the trustee's own profit, or for any purpose unconnected with the trust, and from taking part in a transaction in which the trustee has an interest adverse to the beneficiary. For a building sale, the obvious cases are these:

• You buy the building from the trust, alone or with a partner.
• You sell it to your spouse, a relative, a business associate or anyone who pays you something on the side.
• You buy a beneficiary's share of the proceeds or of the building at a price that favors you. Section 16004 presumes that a transaction between trustee and beneficiary during the trust, in which the trustee gains an advantage from the beneficiary, violates the trustee's duties.

If you are a licensed real estate agent yourself, ask the attorney before you list the trust's building and take a commission on it.

Selling to a beneficiary or to the trustee

A sale inside the family is possible. It is also the sale you have to be ready to defend in the most detail. Start with the trust instrument. It may give a beneficiary an option or a right to buy on stated terms, and if it does, follow those terms.

Where it does not, consent is one path, and it has limits. Under Probate Code section 16463, a beneficiary who consented before or at the time of an act cannot later hold the trustee liable for it, except where the beneficiary lacked capacity, did not know of his or her rights and the material facts the trustee knew or should have known, or was induced to consent by the trustee's improper conduct. When the trustee has an interest adverse to the beneficiary, as when the trustee is the buyer, the consent also fails if the transaction was not fair and reasonable to that beneficiary.

So even with every signature in hand, set the price by an independent appraisal, test it against the market if you can, and use terms an outside buyer would accept. Get each beneficiary's consent in writing after they have the appraisal and the terms in front of them.

The other route is the court. Probate Code section 17200 lets a trustee or beneficiary petition about the trust's internal affairs, which include passing upon the acts of the trustee. Where one beneficiary will not consent, or where you are the buyer, a petition before the sale is worth its cost. Shaya is not an attorney, and this is a decision to make with the trust's attorney, who can also say whether a distribution of the building in kind would work better than a sale.

Keeping beneficiaries informed through the sale

Section 16060 requires you to keep the beneficiaries reasonably informed of the trust and its administration. During a sale, a practical reading of that duty is that they hear about the listing before it goes live, see the offers you are weighing, and receive the signed contract and the final closing statement. Build the file as you go. The account section 16062 requires will draw on it, and so will your answer if a beneficiary asks why you took the offer you did.