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Order Of Distribution At The Termination Of The Trust


Termination of the trust

 The trust can only be terminated in one of 3 ways.  

  1. Beneficiary 2 purchases the property from the trust.
  2. If Beneficiary  2 does not want to purchase the property from the trust Beneficiary 1 is given a 10-day Right To Purchase.
  3. If neither Beneficiary wants to purchase the property it will be sold to the general public.

The order of Distribution is cast in stone

The Order of Distribution is agreed to prior to the trust being formed.  The order is never changed.  The first 4 steps in the Order of Distribution are designed to give both parties all of the money that they originally put into the trust and then share in the profits in Step 5.

Should the proceeds of the sale not be sufficient to reach Step 5 the remaining steps will be ignored.  

In essence, if the proceeds of sale only cover Step 1 and part of Step 2 the beneficiaries would need to contribute funds to make sure that the first 2 steps could be completed.

In real life, if the proceed of sale are not sufficient enough to return a profit the Beneficiaries would most likely agree to continue the existing trust into the future until such time as profits could be generated.

Step 1

Pays off all of the existing loans on the property.  This insures the original Seller that the property will never be subjected to a short sale, thus effecting the Sellers credit.

Of course, if Beneficiary 2 is not purchasing the property from the trust and Beneficiary 2 is exercising their 10-Day Right To Purchase the existing loan(s) do not need to be paid off since they are already in the name of the Seller.

Step 2

If neither of the Beneficiaries desire to purchse the property it will be sold to the public at large and those costs must be paid.

Step 3

This step will return any fees the  Seller paid in the original transaction with 1 exception.  That exception is the cost of real estate commissions.  

Step 4

This step will return any fees the Buyer paid in the original transaction including real estate commissions.  It will also return any principal reductions made by the Buyer since the inception of the trust.

Step 5

Any money that is left from the proceeds of sale will be considered profit. That profit will be split on a predetermined percentage basis. 

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