Purchasing a home from your own family trust?
May 22, 2008 8:30 AM   Subscribe

Can a person purchase a home from her own family trust? Problem: my friend's dad died a few months ago and left his estate plus the family home in a trust set up for his 3 adult kids. My friend and her sister want to buy the house from the family estate (their brother is against this and wants to sell it "as is" on the open market) but they are running into a problem as their lawyer and others say you can't buy a house from "yourself." Can this be true? We live in Illinois. Thank you.
posted by Tullyogallaghan to Law & Government (12 answers total) 3 users marked this as a favorite
The usual response to questions like this is "Ask a lawyer, because a bunch of random people on the Internet are not lawyers, and even if they are, they're not going to give you Legal Advice." In this case, you have a lawyer. Either listen to him/her, or find a new lawyer - not a bunch of random internet people.
posted by Tomorrowful at 8:38 AM on May 22, 2008

IANAL but if the house is in a trust, then your friend & his/her sister wouldn't be buying it from themselves. Trusts are separate entities that exist until a certain event takes place that causes them to dissolve.

It basically comes down to how the trust is written. It sounds like this one is written so that the best way to solve this problem is to put it on the open market at fair market value and let the siblings who want to buy make the purchase.

Trusts can be complex beasts and they are almost always written specifically for the situation at hand. Their going to have to work this one out with their attorney and the other siblings.
posted by stuboo at 8:40 AM on May 22, 2008

It sounds like they have a bad lawyer. At best they own 2/3 of the house, so they don't need to "buy it from themselves", they need to buyout the 3rd sibling. How that is going to work legally (and paperwork-wise) is a different issue, but I'd find a different lawyer.
posted by blue_beetle at 9:06 AM on May 22, 2008

There already is a lawyer involved -- sounds like your friend is looking for either a second opinion or an explanation for why the lawyer's advice is what it is.

Your friend might want to ask the lawyer whether it's a matter of timing (ie, can't dispose of the trust assets until other (probate) conditions are met), or whether there's a restriction in the trust document regarding how the trust assets are to be disposed of. Or what the trust document says about the powers of the trustee to dispose of trust assets.

If your friend does consult with a separate lawyer for a true second opinion, they should probably make sure they give them all of the trust documents (and the will). Anyone who offers an opinion without consulting those documents is speaking in generalities.

TINLA. Good luck.
posted by QuantumMeruit at 9:13 AM on May 22, 2008

Have you read the trust document? Your answer is in there.
posted by lockestockbarrel at 10:06 AM on May 22, 2008

Sounds to me like all three kids might be co-trustees and beneficiaries, in which case buying the house from the trust would be considered self-dealing; ordinarily this type of transaction is permitted if all beneficiaries consent to the transaction and it doesn't materially violate the settlor's intent. However you really haven't given us enough information to go on, and the only right answer is "consult your own lawyer."
posted by HotToddy at 10:20 AM on May 22, 2008

I'm not your lawyer. You really, really need your own. If you think you are getting bad advice, talk to another attorney to get a second opinion.
posted by Ironmouth at 10:37 AM on May 22, 2008 [1 favorite]

Lawyer here, obviously not yours. The following is not legal advice.

The two sisters are only purchasing their brother's 1/3 interest in the house, something they clearly do not own. This is likely something that can be accomplished before the house is distributed from the trust, but it is possible that details unstated in the post above could prevent this (e.g., restrictions in the trust agreement). At the very least, the end result the sisters desire could be accomplished by deeding the house of the trust to the three siblings and having the sisters buy out the brother after that (although this would likely require another deed recording (i.e., first from the trust to the three and second from the three to the two)).
posted by dbolll at 10:47 AM on May 22, 2008

My goodness, people are quick to recommend a lawyer -- even when the legal problem isn't the poster's own. I seriously doubt all the caveats and warnings are necessary.

My reaction was the same as HotToddy's -- which is consistent with the lawyer's inartful advice. It's not really that you can't buy from yourself, it's rather that you may not be able to sell to yourself. This kind of split can usually be resolved by having the house appraised and making sure that the outlier (the brother) is being compensated at market rates -- so as to insure his consent. I assume that your friend and her sister want a better deal, which may indeed be inappropriate.
posted by Clyde Mnestra at 11:50 AM on May 22, 2008

Well blah blah blah - but - Two siblings, one home. One wanted to sell the other wanted to live in it. My friend who knew a very clever ..loansbroker? (they might be called something else) stepped in to help out and everything was in place to buy the other sibling out. (I can't tell you how it turned out, but that is a complete other story.)

What I'm saying is - how were you planning to 'buy them out'? The law can be split up into many areas and someone who specializes in that area particularly will be able to find the best way to achieve your goal.
(Because my friend was involved they were able to swing it as some kind of business loan and they were going to be just so much better off!) It may have been simple in their case, but I'm not convinced there won't be a loophole for your friend too.

Sounds like BS to me. Why can't they buy his third? I'd get another lawyer, you hear of it the other way round but that's always impossible because it's ONE person needing to scrape up 2/3... not TWO people making up the difference on 1/3. I'm jaded but if the brother shares that same lawyer... I wouldn't trust a word they said. But seriously Loansbroker!! (If that's what the people I have in mind are in fact called??) (It's been a while but if I remember correctly the fact that one of the co-signers already 'owned' the house was another thing in their favor too.)
posted by mu~ha~ha~ha~har at 11:52 AM on May 22, 2008

From what i understand ( we just went through this sort of) They have to wait till they get the house.

then the house will have to be assigned a value and split into 3 equal parts. The two syblings would then have to buy out the third syblings share.

First they would have to get a title with all three of there names on it. then buy out the third sybling and get a new title with just their names on it.

Thats how we went about it. ME and my sis got left a house and my parents bought my share of it from me and thats how we did it.
posted by majortom1981 at 1:39 PM on May 22, 2008

First, the lawyer is just plain wrong, or he's under-explaining something. Everyone who refinances their mortgage buys a house from themselves.

This is the scenario I envision, maybe I'm wrong. The house was purchased for $99,999, but is now worth $300,000. Siblings A and B want to give sibling C $33,333 for his share in the house. But sibling C wants the $100,000 that it would get on the market. Further complicating matters is that the house is owned by the trust, and the trustee is obligated to make sure the trust sells its assets for their full value, and cannot accept $33,333 for a third interest in something worth $300,000.
posted by gjc at 3:35 PM on May 22, 2008

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