Trusts: How to Handle a Home in a Trust

Q: My mom’s home is in a trust. She passed away towards the end of last year. She lived in the home for over 20 years. Her trust lists her six grandchildren as the beneficiaries of the trust.

We’ve found a buyer for the home who is paying cash. As a trustee, am I required to open a separate bank account for the proceeds? I am wondering if I need to place the sales proceeds into a trust account before distributing the money to the beneficiaries?

A: We’re sorry for your loss. It was nice of your mom to leave the home to her grandchildren. Apparently, she left you — her child — in charge of the trust, with the funds going to support the grandkids. There are two separate concepts that we need to talk about to answer your question.

Estate Planning: Trusts and Transfer on Death (TOD)

The first issue relates to your mom’s debts and bills. When your mom died, her estate would have to settle any outstanding debts. Someone should have taken care of paying her final bills, funeral expenses, state and federal income taxes for the prior or current year, credit card bills, utility charges, etc.

For simplicity’s sake, we assume that you took care of all of those bills. Or, that you have money in another account to take care of any final bills and obligations your mom had or that her estate might have. If this is the case, once you sell the home, the money from the sale can go directly to the grandkids. You, as the trustee, can direct the settlement agent or closing attorney to pay the proceeds from the sale to the six grandchildren.

Revocable and Irrevocable Trusts

It could be as simple as that. Do you need some of the money from the sale of the home to pay for the funeral expenses? Perhaps some other bills might not have been paid or are coming due. To pay these bills, you might need to set up a bank account for the trust. Once you have that account, you can pay your mom’s bills and other estate expenses from the bank account. Once everything is settled, you could pay the grandkids and close the bank account.

Depending on your situation and circumstances, you might need to talk to an estate attorney to make sure you’re doing everything correctly. For example, let’s say your mom’s estate was pretty simple:

She lived off her social security and some small other sums
Didn’t have debts
All bills were paid shortly after death

At that point, any money from the estate could be paid to the beneficiaries or heirs under her will.

How to Transfer a Home Into a Living Trust

However, it’s important not to empty the estate before settling all accounts. Make sure to first pay all bills and expenses of your mom’s estate in full. After, you can distribute cash to the beneficiaries. You don’t want to distribute money to the grandchildren and then find out that the estate has a $5,000 bill to pay.

Trustee or estate representative must deal with a lot of different issues after a loved one passes. But, keep in mind that bills must get paid. Also, creditors and the Social Security Administration must get notified of the death. Often, the funeral home may notify SSA on your behalf.

In many instances, where the deceased had bank accounts, real estate assets, or investment accounts, and it will take time to settle their affairs, you’ll need to apply for an Employer Identification Number (EIN) for the estate. That’s a different number than your mom’s social security number.

Should I set up a trust or use a transfer-on-death (TOD) deed?

Don’t use your mom’s social security number after her death. If there is any income earned from her investments between the date of her death and the date any of her assets are transferred to her grandkids, use the new EIN number.

If you open a bank account for your mom’s estate or for the trust, you might need another new EIN. You can’t use your mom’s social security number or the EIN for your mom’s estate for that purpose.

It’s complicated. That’s why, depending on how sizable her assets and cash are, you might to hire an estate attorney.