Selling Assets Within the Trust

I recently had a call with Emily, and her situation is tragically common. She’d meticulously crafted a Living Trust, funded it with her home and brokerage accounts, and even had a signed codicil updating her beneficiaries after a divorce. But Emily had a problem: she needed cash to cover mounting medical bills. Desperate, she attempted to sell her rental property, held title within the trust, but the title company refused to proceed without a court order. The delay and legal fees ultimately cost her thousands and caused significant stress during an already difficult time. This isn’t about the trust failing; it’s about understanding the nuances of operating within its framework.

Can a Trustee Sell Assets Held in a Revocable Living Trust?

Yes, but it’s rarely as straightforward as a simple transaction. As a practicing attorney and CPA with over 35 years of experience here in Corona, California, I often find clients assume that because they own the trust, they can simply direct the trustee (which is often themselves) to sell assets. That’s partially true, but requires adherence to fiduciary duties and proper documentation. The trustee has a legal obligation to act in the best interests of the beneficiaries, and that includes obtaining fair market value for any asset sold. My CPA background is particularly helpful here because it allows me to accurately assess the tax implications of a sale – specifically, the potential impact on the step-up in basis we’ll discuss later.

What Happens with the Step-Up in Basis When Assets are Sold?

One of the major benefits of a Living Trust – and why I always recommend it over a simple Will – is the potential for a “step-up” in basis for inherited assets. When an asset held in trust passes to your beneficiaries, its cost basis is adjusted to its fair market value on the date of your death. This minimizes capital gains taxes when they eventually sell it. However, if you, as the grantor and trustee, sell an asset during your lifetime, that step-up in basis is lost. You’re responsible for any capital gains tax based on the difference between your original purchase price and the sale price. That’s why careful planning is critical.

What About Real Estate Held in the Trust and Prop 19?

Real estate transactions within a Living Trust require extra attention, particularly in California due to Proposition 19. While transferring your home into your revocable trust does not trigger reassessment, the eventual distribution to your children will trigger a Prop 19 reassessment to current market value unless the child moves in as their primary residence within one year. This is a significant factor for estate planning and can influence how and when you choose to sell property held within the trust.

What If an Asset Was Accidentally Left Out of the Trust?

It happens. Often clients forget to transfer a particular account or piece of property into the trust. For deaths on or after April 1, 2025, if a primary residence intended for the trust was accidentally left out (valued up to $750,000), it qualifies for a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151). It’s vital to understand the distinction: This is a Petition – a court order – not a Small Estate Affidavit. Affidavits have specific valuation and heir requirements that AB 2016 doesn’t. It provides a streamlined process, but still requires judicial oversight.

What About Digital Assets and RUFADAA?

Don’t overlook your digital footprint. Without specific RUFADAA language (Probate Code § 870) in your trust, service providers like Apple, Google, and Coinbase can legally deny your successor trustee access to your digital photos, emails, and cryptocurrency. This is becoming an increasingly important consideration as more of our lives move online.

Understanding Fiduciary Duty: This requires trustees to act with prudence, loyalty, and good faith.
Proper Documentation: Maintain detailed records of all transactions, including appraisals, sale agreements, and disbursement of funds.
Tax Implications: Consult with a CPA to understand the capital gains tax consequences of selling trust assets.

What determines whether a California trust settlement remains private or erupts into public litigation?

California trusts are designed to bypass probate and maintain privacy, yet they often fail when assets are not properly funded, trustee duties are ignored, or ambiguous terms trigger disputes. Even with a signed trust document, families can face court battles if the “operations manual” of the trust isn’t followed strictly under the Probate Code.

A stable trust administration relies on the trustee’s ability to balance investment duties, beneficiary communication, and tax compliance. When these elements are managed proactively, families can avoid the emotional and financial drain of litigation.

Verified Authority on California Trust Law

• Trust Validity (Probate Code § 15200): California Probate Code § 15200
  The foundational statute confirming that a trust requires property to be valid. This is the legal basis for the “funding” requirement—without transferring assets (deeds, accounts) into the trust, the document is legally empty.
• Revocability Presumption (Probate Code § 15400): California Probate Code § 15400
  Confirms that California trusts are presumed revocable unless stated otherwise. This grants the settlor the flexibility to change beneficiaries, trustees, or terms as life circumstances evolve.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute acts as a backup for funding errors. If a home (up to $750,000) is left out of the trust, this Petition avoids a full probate administration.
• Property Tax Reassessment (Prop 19): California State Board of Equalization (Prop 19)
  Essential for all trust creators. While the trust avoids probate, it does not automatically avoid property tax increases for heirs. Specific planning is required to navigate the “primary residence” requirement for children.
• Estate Tax Exemption (OBBBA): IRS Estate Tax Guidelines
  Reflects the OBBBA permanent increase to a $15 million per person exemption (effective Jan 1, 2026). This shifts the planning focus for most Californians from tax avoidance to asset protection and probate avoidance.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without this statutory authority included in your trust, your digital legacy (crypto, social media, cloud storage) may be permanently locked away from your family by service providers.