Yes. A note held in a trust can be sold, in full or in part. The trust is the seller, so the trustee signs, and the buyer will want to see that the trustee has the power to do it.
Who signs for a trust
A trust is a legal arrangement in which one person, the trustee, holds property for the benefit of others, the beneficiaries. A note placed in a trust belongs to the trust, even if you created that trust and every payment still lands in your account. The sale documents are therefore signed by the trustee in that role, for example “Jane Smith, Trustee of the Smith Family Trust”.
Where there are two trustees, the trust document says whether one can act alone or both must sign. It also says whether the trustee needs the beneficiaries’ consent before selling a trust asset.
Revocable and irrevocable trusts
| Revocable living trust | Irrevocable trust | |
|---|---|---|
| Who the trustee tends to be | The person who set it up | Someone else, or a trust company |
| Who the trustee answers to | Themselves, while living | The beneficiaries, under the trust’s terms |
| What can slow a sale | The note was never formally moved into the trust | Limits on selling assets, or a need for consent |
If you set up a revocable living trust and named yourself trustee, selling feels much like selling a note you hold personally. An irrevocable trust asks more of the trustee, who has a duty to act in the beneficiaries’ interest and should be able to show why a sale, at that price, serves them. The worksheet we send with each offer when we price a note for a trustee does that job, kept with the trust’s records.
What the buyer asks the trustee for
Beyond the standard documents you need to sell a note, a buyer checks that the trust really owns the note and that the person signing can sell it. Expect to be asked for:
- A certification of trust, sometimes called a certificate or abstract of trust. It is a short summary that names the trustees and confirms their powers without disclosing who inherits what. Some buyers and title companies ask for specific pages of the trust instead.
- The transfer into the trust, if the note was first made out to you personally: an endorsement on the note or an allonge, plus a recorded assignment of the mortgage or deed of trust.
- A taxpayer identification number for the seller, so the sale is reported under the right name. Whether that is the trust’s own number or yours depends on the kind of trust, and a CPA can tell you which.
The middle item is where trust sales stall. Someone signs a trust, lists the note on a schedule at the back, and never endorses the note or records an assignment, so on paper the note is still theirs. It can be put right, and a title company or attorney in the property’s state can say how the transfer should be completed there.
When a successor trustee is selling
After the person who created the trust dies, a successor trustee, perhaps an adult child, takes over with a note to deal with and beneficiaries waiting for their share. A successor trustee can generally sell, but the buyer will want proof that the role has passed: the trust document or certification, and a death certificate. What else is needed depends on the trust and the state, and most of what heirs should do first applies to a successor trustee too.
A partial sale deserves a look when beneficiaries want different things. The trust sells a set number of upcoming payments for a lump sum and the note comes back to it afterwards, so those who need cash now can be paid while the later payments stay in the trust. Whether a buyer will offer one depends on the note’s remaining term, the payer’s record and the trustee’s powers.
Tax and the trust’s own terms
Trusts are taxed in different ways depending on how they are set up, and a sale can affect the beneficiaries as well as the trust. The rules vary by state and by trust, and we do not give tax or legal advice. Before the trustee accepts an offer, ask the drafting attorney or a CPA how the proceeds will be treated and whether the trust places any conditions on a sale.
Start with the name on the note
Take out the note and the recorded mortgage or deed of trust and read the payee line. If it names the trust, find the pages that appoint the trustee and list the trustee’s powers. If it names you, the transfer described above is the first job. After that, a trust’s note goes through the same stages of a note sale as any other.
Tell each buyer at the start that a trust holds the note, and which kind. The quote can then list what the trustee must produce, and a missing endorsement comes to light while there is time to complete it.
Related questions
Does a buyer need to read my whole trust?
Not necessarily. A certification of trust, a short summary that names the trustees and confirms their powers, is accepted by some buyers and title companies, and others want specific pages. Ask before you send the full document.
The note is in my name but I meant it to be in my trust. Is that a problem?
It is a gap that can be put right. The note needs to be transferred to the trust on paper, or sold by whoever holds it on paper. An attorney or title company can tell you which route is cleaner in your state.
Can a trust sell only part of a note?
It can, if the trust's terms allow the trustee to sell part of an asset and a buyer is willing to write one on that note. The trust sells a set number of payments for a lump sum and the note comes back to it afterwards.