By Gabe Walsh, Legal Counsel
A person transferring real property, or a broker or salesperson acting on their behalf, must deliver a written disclosure statement to the person interested in being transferred that property where the property has at least one but no more than four dwelling units. However, a written disclosure statement is not required when property is transferred by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.
When a homeowner dies and their assets are administered through their estate, they aren’t here to make a written seller disclosure. If a homeowner becomes incapacitated and they have a guardian or conservator representing their interests well, that homeowner also does not have capacity to make a written seller disclosure. It makes sense why we don’t require seller property disclosures in these circumstances.
The transfer exemption discussed above all makes sense until you start talking about trusts. If the person whose house is held in trust is deceased, no disclosure is required. But what if a homeowner has their house in a trust and sells it while they are alive? They live in the house and have lived in it for years. They would have just as much knowledge about important characteristics of the property as any other seller. They are fully capable of providing written disclosures. Are we really going to exempt them simply because their property is in a trust?
When the person whose house is held in trust is incapacitated or deceased, the exemption makes sense. But what if a bank is the trustee and the person who lived in the house, which they put into their living trust, dies? Do you think the banker has enough knowledge to make all the required disclosures? Probably not. That appears to be the key reason to exempt trusts when they are administered after that person with knowledge has died. However, it is very difficult to see why a living and competent homeowner’s property could be transferred through a trust without making written seller disclosures. It is hard to imagine that was the intent of the legislature.
The problem with this topic is that there isn’t a clearly correct answer on whether a transfer of a property held in a trust, while the creator of the trust is still alive, is exempted. Next time you decide to list a house that is held in a trust where the person transferring the property is alive and well, stop and think about it. Don’t assume that just because the property is in a trust that your property is automatically exempted from making a seller disclosure. A seller in such a situation may want to consider making the disclosure. Always seek counsel if you are unsure what you should do to get the legal advice you need when it comes to making a disclosure of this type.
Gabe Walsh grew up in Alta, Iowa. He received his Undergraduate Degree from Iowa State University and his Juris Doctorate from Drake University Law School. When he is not in the office or out working with our members, he enjoys playing golf, biking, boating, and spending time with his family. He would like to thank everyone who went out of their way to welcome him into his new role at IAR!