Can Trustee Sell House in Trust if Maintenance Funds are Unavailable?
If my parents have a revocable trust that gives life use to their home to my sister after they have passed and she cannot pay for the expenses (taxes, insurance etc) of maintaining the home, what happens? Can the house then be sold to avoid a lien or others (i.e., me) having to pay the expenses? Would it be recoverable then by Medicaid?
It all depends on the terms of the trust. It should give the trustee the right to sell property if necessary. Whether or not the trustee has that power, if you were to advance the funds to maintain the property, you could do so in the form of a loan to the trust. This should be formalized through a promissory note (that includes interest) and secured through a mortgage on the property. Then, you would be reimbursed when the property is sold, whenever that may be.
That said, if there is no funding for the property’s maintenance, the trustee should be able to sell it even without specific authorization in the trust, as part of their duty to preserve trust property. To be safe, it would be good to seek court approval of such a sale. If your parents are able to do so, it would be a good idea for them to leave some funds, as well as their home, in the trust to pay for its upkeep after their gone. Then, you would be less likely to face the dilemma you are anticipating.
In terms of Medicaid estate recovery, and other creditors for that matter, the home should be protected. While I have not had the opportunity to review the trust, most trusts created by one or more people (your parents) for the benefit of a third party (your sister) include provisions that protect the trust property from the beneficiary’s creditors. In addition, if the beneficiary does not have the right to demand distributions, it likely will not be included as an asset when determining the beneficiary’s eligibility for Medicaid or other public benefits. In addition, unless it’s payable to the beneficiary’s estate upon her death, it will not be subject to a Medicaid claim for reimbursement. However, it would still be subject to claims for back taxes and perhaps for utilities related to the property in trust.
For a definitive answer to your questions, you would need to have an elder law or estate planning attorney review the trust.
Don’t know how your trust works?
Whether you’re creating a plan, managing a trust, or are a beneficiary of a trust, this book is your easy-to-read roadmap.