Disclosure for sellers
Sellers | 24 February 2020
By the team at settled.govt.nz
If you don’t approach it in the right way, selling a property that’s part of a trust can get extremely complicated. If you’re looking to do this in the future, it’s a good idea to get a handle on the process before you start.
Each trust is different and operates on the conditions set out in the trust deed. So the first thing you should do is talk to the trust’s lawyer – ideally the one who was involved in setting up the trust to start with – as they will have a good understanding of your family’s particular circumstances. They will be able to check the terms of the trust to ensure whether or not its assets can be sold (in some trusts, assets are protected from sale).
You should check that the trust has an IRD number as you will need one to sell the property. There may also be tax implications if you sell the property – this depends on when it was purchased and whether it is the main family home. You should check any tax implications with an accountant.
If the property can be sold, all the trustees must agree on this course of action. The lawyer will draw up a resolution that documents the decision to sell the property and this must be signed by all the trustees.
Once this process is in train you can start thinking about how to sell the property . If you are considering selling privately, be aware that you will need to have it assessed by a registered valuer (this is a requirement of the Trustee Act). While selling privately can save you money on commission, selling a property can be complex and you need to understand the risks involved.
If you decide to use a real estate agent to sell the property, make sure all the trustees are in agreement about which agent you choose. If it’s logistically or practically difficult for all of you to be involved, it’s a good idea to nominate one or two trustees to be in control of the process. Ensure they document all conversations and decisions so you have records to refer back to later. Again, don’t be shy about asking your lawyer for advice.
Being a trustee means you have to meet a number of legal obligations. For example, if you allowed the trust property or other assets to be sold at a very low price, you could be liable for breaching your duty of diligence and prudence.
Even if all the trustees are not involved in selecting the real estate agent and discussing the method of sale and marketing for the property, all of you must sign the agency agreement to list the property . This is the contract between the trust and the real estate agent that sets out how the property will be marketed for sale and what the commission will be if it is successfully sold. Again, the signing of this must be documented in trustee resolutions. While this may seem like a lot of bothersome admin, you need to follow the exact rules of your trust in case something goes wrong later.
When the property is sold – again, when all trustees are happy with the price and conditions – all the trustees must sign the sale and purchase agreement . The buyer’s deposit will be held in a lawyer’s or real estate agent’s trust account. After settlement, the trust’s assets register should be updated to reflect the sale.
Once you have signed a sale and purchase agreement and settlement has occurred, you need your lawyer or conveyancer to hold the sale proceeds (less any fees) in the family trust’s bank account. The proceeds from the sale will remain in the family trust account until they are distributed in accordance with the trust deed.
Selling a family property with multiple trustees can be a trying time on many different levels and people don’t always act as you might hope or expect. A bit of planning, preparation and sound legal advice will help you navigate any choppy waters.