Selling Trust Property

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When trustees of a family trust decide to sell trust assets, there are a few more hoops to jump through than when it is just an individual selling property. To ensure the transaction goes smoothly, and to protect trustees’ liability, the following steps should be taken.

Do the trustees have the power to sell the property?
The first step trustees must take in considering whether to sell property held by a trust is to check the terms of the trust deed to see if there is a power of sale contained within the trust terms.

All the trustees must agree to sell the property – and properly document the transaction
All trustees must agree to the property being sold (including independent or professional trustees). A trustee resolution should be prepared documenting the decision to sell the property. This must be completed prior to a Sale & Purchase Agreement being signed. 

The trust’s lawyer should be instructed to act on the property conveyance and the trust assets register should be updated following settlement of the sale.

Ensure the trust has an IRD number
If the trust does not already have an IRD number the trustees should apply for an IRD number to be able to sell the property.

Check if you need to get a valuation of the property
If the sale is a private transaction (i.e. not through a real estate agent), a registered valuation will be needed. The sale of any land or property should be valued in accordance with section 28 of the Trustee Act.

Check the tax implications
The Residential Land Withholding Tax (“RLWT”) (“Bright-line Test”) liability arises where residential land located in New Zealand that was acquired on or after 1 October 2015 is disposed of within two years of acquisition. The test will require income tax to be paid on any gains from the sale of the residential property that is bought and sold within two years, with the exception of the main family home and which includes properties held in trust.

It would be prudent to seek specialist tax advice if necessary.

Trustees should understand their legal obligations
Trustees would be liable in damages for breach of their duty of diligence and prudence if they were to sell a trust property for an excessively low price. However, the amount of the trustee’s liability is limited to the loss incurred as a result of the breach of trust and this will be the amount of damages awarded.

Ensure the Sale & Purchase Agreement is filled in correctly
As a trust is not a legal entity the vendor’s name is not the trust name but rather the names of the individual trustees, as trustees of the ABC Family Trust. The names of all trustees (as trustees of the ABC family trust) should appear on the vendor section of the Agreement for Sale & Purchase

Distributing the sale proceeds correctly
The trustees need to remember that the proceeds of the sale remain as trust funds, not funds of the settlor(s). Any distributions to beneficiaries need to be dealt with accordingly. 

Selling property held by a family trust does not need to be complicated, but the correct steps do need to be followed. If you wish to sell property held by a family trust and want to ensure everything is done correctly, contact Jennifer Edwards, by email at jennifer.edwards@smithpartners.co.nz or by phone: 09 837 6889

 

 

 

 

 


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