Can a Trustee Sell Real Estate to a Beneficiary in California? | Trustee Rules Explained

Short Answer

Yes, under California law, a trustee can sell trust real estate (a home, house, or other property) to a beneficiary, but only if the trustee follows fiduciary duties, uses full disclosure, and structures the transaction at fair market value with proper documentation. If the trustee cuts corners, grants special treatment, or engages in self-dealing, beneficiaries can challenge the sale in court and seek California Probate Code remedies such as accounting, surcharge, removing the trustee, or even undoing the sale and voiding it.

Introduction

A trustee often holds the keys, literally. In trust administration, real estate can be the most valuable asset in the trust. Therefore, the moment a trustee proposes selling the family home to one beneficiary, the trust can shift from calm to conflict.

On paper, the idea sounds practical: keep the property in the family, avoid strangers, and close quickly. However, the same transaction can spark disputes when other beneficiaries believe the trustee underpriced the property, ignored higher offers, or offered favorable terms that feel like a sweetheart deal. In California, these transactions can work, but only when the trustee acts appropriately, documents the process, and puts the best financial interests of the trust first.

The Trust World’s “Divided Ownership” Problem

A California trust creates divided ownership:

• The trustee holds legal owner status (legal ownership) and must manage assets, control assets, and administer the trust.

• The beneficiaries hold beneficial owner status (beneficial ownership) and receive the benefit of trust assets.

This division matters because a trustee can refinance, rent, and collect rent, or sell real estate, but the trustee must exercise those powers under strict ground rules. Otherwise, beneficiaries can feel like a spectator, watching someone else play on the field with property that represents their share of trust.

The Legal Ground Rules Under California Probate Code §§16002, 16003, 16004

California law does not forbid a trustee-to-beneficiary transaction. Instead, it polices the how.

Key fiduciary duties under the California Probate Code include:

• §16002 (Loyalty): The trustee must administer the trust solely in the interest of beneficiaries—no secret actions, no pocket proceeds, no financial advantage taken at the trust’s expense.

• §16003 (Impartiality): The trustee must treat beneficiaries fairly and benefit them equally when the trust requires it—no preferential treatment.

• §16004 (No self-dealing/conflicts): The trustee must avoid self-interested conduct and disclose conflicts.

Even when the buyer is a beneficiary (not an unrelated buyer), the trustee still must maximize value, act with loyalty, and maintain impartiality. Otherwise, the trustee can become liable for breach of fiduciary duty and breach of trust.

Can a Trustee Sell Real Estate to a Beneficiary? The Core Requirements

A trustee can sell trust property to a beneficiary in California when the transaction respects fiduciary duties and standard real estate formalities.

1) Confirm the Power to Sell in the Trust Document

Start with the trust document. Many California trust instruments expressly grant the trustee the power to sell. However, the trustee still must operate within the trust’s purpose and any limits on selling, discounting, or distributing.

2) Use Fair Market Value Supported by a Current Appraisal

The safest anchor is fair market value backed by a current appraisal or professional appraisal. If the trustee sells below fair market value, beneficiaries can argue underpricing, selling below fair market value, or failure to maximize value.

Practical steps that strengthen the file:

• Obtain a professional appraisal (and keep it)

• Document market value with comps

• Record how the trustee verified the value and considered substantial repairs

3) Provide Full Disclosure and Seek Informed Consent When Possible

Full disclosure prevents mistrust. In many families, the transaction goes smoother when beneficiaries receive:

• Notice of the proposed sale

• The appraisal and material disclosures

• A summary of offers (including higher offers, faster offers, and third parties)

• A timeline, deadlines, and closing expectations

When appropriate, obtain written consent. Even then, the trustee must document that the beneficiaries acted informed and voluntarily.

4) Follow Standard Real Estate Formalities (No Cutting Corners)

A defensible sale looks like a normal transaction:

• Purchase agreement

• Disclosures

• Documentation and contingencies

• Proof of funds or financing terms

• Proper closing and recording

When a trustee bypasses these steps, beneficiaries can argue that the trustee acted improperly.

Red Flags That Turn a Simple Sale Into Trust Litigation

Trust disputes often share common sources. Watch for these patterns:

• Self-dealing or self-interested conduct: A trustee accommodates friends, offers sweetheart deals, or quietly takes a financial advantage.

• Preferential treatment: One beneficiary gets extensions, early possession, or use of the home while others wait powerless.

• Ignoring better offers: The trustee rejects higher offers from unrelated buyers or strangers without a documented reason.

• Selling below fair market value: The trustee skips appraisal, relies on stale numbers, or underpricing becomes obvious.

• Seller financing that harms the trust: Unsecured notes, weak down payments, or unrealistic interest rates create liability.

• Funding repairs or loans for one beneficiary: The trustee funds substantial repairs to support one buyer without balancing the benefit to all beneficiaries.

• Secret actions: No notice, no disclosures, and no paper trail—then beneficiaries feel surprised and abused beneficiary dynamics follow.

Each red flag increases litigation risk. Worse, it can justify grounds for litigation alleging breach of fiduciary duties.

Best Practices for a Clean, Defensible Transaction

A trustee can reduce disputes by building a record that answers, “Was this in the trust’s best interests?”

Checklist for Trustees Selling to Beneficiaries

• Get a professional appraisal (current appraisal)

• Circulate notice and key disclosures to all beneficiaries

• Document offers and the reasons for accepting one offer over another

• Treat beneficiaries with impartiality—avoid special treatment

• Use written consent when feasible

• Keep a transaction log (timeline + deadlines)

• Use escrow and standard purchase agreement forms

• Consider independent counsel for the trustee and for the purchasing beneficiary

• Address taxes early (property taxes, capital gains rules, reporting)

Financing: The “Looks Fair” Trap

Seller financing can be legitimate, but it can also look like favoritism. If the trust finances the sale:

• Set market interest rates

• Require adequate down payments

• Secure the note with the property (avoid unsecured notes)

• Document the underwriting logic

Otherwise, beneficiaries may claim the trustee mishandled assets.

What Beneficiaries Can Do If They Believe the Deal Was Mishandled

Beneficiaries have rights and real remedies when they believe a trustee breached fiduciary duty.

Early Steps That Protect Rights

• Request information and an accounting

• Ask for documentation: appraisal, offers, disclosures, escrow statements

• Put objections in writing (calm, factual, dated)

Court Options and California Probate Code Remedies

If the trustee refuses transparency or closes a questionable transaction, beneficiaries may consider petitioning in probate court. Remedies can include:

• Accounting (forced disclosure)

• Surcharge (financial compensation for losses)

• Remove trustee (trustee removed for misconduct)

• Undoing sale / voiding sale (unwind transaction in severe cases)

• Stop action (injunction-type relief to pause the sale before it closes)

These actions often fall under trust litigation and probate litigation. A trust attorney or probate attorney can represent beneficiaries, file in court, and pursue legal remedies. In high-stakes disputes, claims can escalate into major litigation, sometimes involving allegations and damages discussed in numbers as extreme as $300 million, which underscores why documenting value and fairness matters.

When beneficiaries want to enforce rights, they can hire law firm counsel for representation, especially when the trustee acted self-interestedly, ignored better offers, or breached loyalty.

Frequently Asked Questions

Can a trustee sell property to one beneficiary at a discount?

A discount can trigger disputes. Unless the trust document clearly authorizes it and all beneficiaries give informed written consent, selling below fair market value often creates breach of fiduciary duty exposure.

Does the trustee have to sell to a beneficiary instead of an unrelated buyer?

No. The trustee must act in the best financial interests of beneficiaries. If a third-party offer is higher or cleaner, ignoring better offers can create liability.

What if the trustee already closed the sale?

Beneficiaries can still petition the court. Depending on the facts, a court can surcharge the trustee, order financial compensation, or unwind a transaction in rare but serious situations.

What if the beneficiaries suspect self-dealing?

Self-dealing violates fiduciary duties under California law. Beneficiaries can seek the court’s help, request an accounting, and pursue action against trustees.

Does this apply if the beneficiary is also a will beneficiary?

Sometimes estates involve both a will and a California trust. However, trust administration rules still apply to trust assets even when inheritance abuse allegations arise in the broader estate plan.

Key Takeaways

• A trustee can sell real estate to a beneficiary in California, but the trustee must honor fiduciary duty, loyalty, and impartiality.

• Fair market value and a professional appraisal reduce challenge risk.

• Full disclosure, notice, and documentation prevent mistrust and disputes.

• Cutting corners, especially on pricing, financing, or disclosures, creates grounds for litigation.

• Beneficiaries can pursue California Probate Code remedies: accounting, surcharge, remove trustee, and, in extreme cases, voiding the sale.

Conclusion

A trustee can sell a home or other property to a beneficiary in California, yet the transaction must look fair, measure fair, and document fair. When the trustee seeks input, stays informed, confirms value, and avoids preferential treatment, the sale can protect the trust and help beneficiaries move forward with dignity. Conversely, when a trustee hides the ball, sells below market, or structures seller financing that harms the trust, beneficiaries can sue for breach of trust and breach of fiduciary duty, and the court can unwind the deal.

Moravec Varga & Mooney handles Probate, Trusts & Wills, Trust Administration, Medi-cal Planning, Pre & Post Nuptial Agreements, and Estate Tax matters. For a phone consultation, call the office and ask intake specialists about intake, case evaluation, and consultation options, including whether a free consultation is available, then get a clear plan for next steps and deadlines.