Managing Real Estate in a Trust: A Guide for Trustees

Real estate often represents the largest and most complex asset held in a trust. Family homes, vacation cabins, commercial properties and farmland carry financial value and sentimental weight. For trustees, managing real estate requires far more than collecting rent checks. It involves legal compliance, market savvy, maintenance oversight and careful communication with beneficiaries. This article explores what it means to be a real estate trustee, highlights common challenges and offers guidance for keeping property in trust secure and productive.

Understanding the Trustee’s Real Estate Role

When real estate is transferred into a trust, the trustee becomes responsible for all aspects of property management. According to legal guidance from estate planning sources, a real estate trustee must collect rent, manage maintenance and repairs, ensure appropriate insurance coverage, handle property taxes and make decisions about buying, selling or leasing in accordance with the trust’s terms. This is true whether the property is a single‑family home, a rental duplex, a commercial building or undeveloped land. The trustee must understand property management, real estate law and local market conditions to protect and maximize the property’s value.

In most trusts, the trustee has authority to decide whether to hold, sell or lease property, subject to the document’s instructions. The trustee must also ensure that the property is properly insured and that property taxes are paid. For rental properties, the trustee must find and screen tenants, collect rent, handle lease renewals, respond to maintenance issues and keep the property in good condition. For family homes that beneficiaries use personally, the trustee must set clear usage rules and determine whether beneficiaries must pay rent or contribute to upkeep.

Challenges of Managing Real Estate in Trust

• Balancing Financial Return and Preservation.  Trusts often have competing goals: generating income for current beneficiaries and preserving principal for future beneficiaries. Real estate complicates this balance. Keeping a property may provide steady rental income but also exposes the trust to fluctuating market values, tenant issues and maintenance costs. Selling may produce a windfall but may disappoint beneficiaries who have emotional attachments to the property.

• Handling Maintenance and Repairs.  Maintenance is not optional. Trustees must schedule regular inspections, perform routine maintenance and address repairs promptly to preserve the property’s value. Deferred maintenance can lead to larger expenses and potential liability. Trustees should develop a maintenance schedule and budget, maintain a reserve fund for unexpected repairs, and hire competent contractors.

• Tenant Management and Legal Compliance.  If the property is rented, the trustee must comply with landlord‑tenant laws. That means using fair housing practices, providing habitable conditions, responding to repair requests and following legal procedures for evictions. Trustees who ignore these obligations can face lawsuits and fines. Hiring a professional property manager may be advisable, especially if the trustee lacks experience.

• Emotional Attachments and Family Disputes.  Real estate often has sentimental value. Beneficiaries may be emotionally attached to a family home or vacation cabin. Decisions about whether to sell, rent or occupy the property can lead to conflict. Trustees must navigate these emotions while following the trust’s terms and protecting the property. Clear communication, transparency and adherence to the trust document help mitigate disputes.

• Record Keeping and Accountability.  Trustees must keep property management separate from their personal affairs. They should maintain dedicated bank accounts for rental income and expenses, track all receipts and payments, and prepare annual accountings. Estate planning experts emphasize that trustees must keep accurate records and provide annual reports and notices of significant events to beneficiaries. Failure to do so can lead to accusations of mismanagement and liability.

Best Practices for Real Estate Trustees

Follow the Trust Document and Prudent Investor Rule.  Understand what the trust says about the property. Does it require the trustee to sell at a certain date? Does it allow leasing? The prudent investor rule requires trustees to treat real estate as part of a diversified portfolio. This may mean selling or leasing property if it represents an outsized portion of the trust’s assets. Trustees should evaluate whether the property’s return and risk align with the overall investment strategy.

Engage Professional Help.  Trustees are not required to personally perform every task. Hiring property managers, real estate agents, appraisers and attorneys can improve compliance and reduce risk. Professional property managers can handle tenant screening, lease enforcement, and maintenance. Real estate agents can provide market insights for sale or leasing decisions. Appraisers can produce unbiased valuations for fair distribution or tax reporting.

Maintain Adequate Insurance and Reserves.  Ensure that the property has sufficient insurance coverage, including liability and property damage. Budget for property taxes, insurance premiums, and maintenance. Establish a reserve account to cover large repairs or periods of vacancy.

Communicate with Beneficiaries.  Provide regular updates on the property’s condition, income, expenses and any contemplated sale. When major decisions arise, explain the rationale and reference the trust’s instructions. Transparency reduces suspicions and fosters cooperation.

Plan for Sale or Transfer.  Even if the trust intends to hold property long term, trustees should plan for eventual sale or distribution. This includes keeping property in marketable condition, understanding tax implications and developing a timeline aligned with trust terms and beneficiaries’ needs. When a sale becomes appropriate, follow proper sale procedures and document all steps.

Conclusion

Real estate adds both opportunity and complexity to trust administration. Trustees must balance income generation, asset preservation and beneficiary expectations while navigating landlord‑tenant laws, maintenance responsibilities and market fluctuations. By following the trust document, adhering to the prudent investor rule, engaging professionals, maintaining records and communicating clearly with beneficiaries, trustees can steward real estate assets effectively and avoid disputes or liability. The goal is to ensure that the property serves the trust’s objectives and benefits beneficiaries for years to come.