Question: I recently purchased my first piece of real estate in the name of my Solo 401(k) Trust. The title company eventually closed the transaction, but not without considerable hassle. The title company said I must correct the problems before I attempt a sale of the property. The title company said I must consult an attorney since they (the title company) were not familiar with the Trust instrument. The attorney told me the Solo 401(k) Trust could not legally hold title to Real Estate. The attorney’s “tax specialist” said he read in the trust document that the Trust would be funded by life insurance proceeds.
a. Have others in the past had similar problems purchasing real estate in the name of their Solo 401(k) trust, and if so what was the solution?
b. Can you provide guidance to correct this situation for future transactions?
c. Does the Solo 401(k) Trust instrument contain errors?
Answer: a. It isn’t a common problem, but all too often the employees of financial institutions are not familiar with a self-trusteed, self-administered qualified retirement account trust. The same can be said for attorneys…even “tax specialists.” Additionally paranoia is common among lawyers and financial institution employees in the wake of 911 and the financial industry debacles of the past several years.
Nowhere in the Trust instrument does it indicate the trust cannot hold real estate. Article IV Section 4.2(a)&(f) specifically provide that the trust can own Real Property. There are other provisions in the Trust Instrument instructing the Trustee in the proper administration of life insurance contracts purchased by the trust as allowed by Section 4.2. These provisions in no way prohibit real estate ownership by the Trust.
Nowhere in the Trust instrument is there a provision that the Trust would be funded by life insurance proceeds.
The solution we have suggested to others is to understand that the Trust instrument is a private document. It specifically allows the holding of Real Estate in the Trust. If a particular title company will not cooperate, we have suggested utilizing the services of a more cooperative title company. Alternatively, it is acceptable for trust property to be titled in the format of [Name of Trustee], as trustee for [Name of Trust]. In other words, if John Doe was the trustee of Doe Company 401k Trust, it would be acceptable to title the trust’s real property in the name of John Doe, as trustee for Doe Company 401k Trust.
b. It should not be a requirement to provide a copy of the Trust Instrument to the title company. It is a private document.
c. The Solo 401 (k) Trust Instrument does not contain errors.