(Please Read) - Creative structure required involving Trust and family sale

[Jake Smalley]

I've come across a property problem I'm hoping to help solve. Here's the rundown:

Grandmother owns house (free and clear), her daughter lives in house as well with four children.

Grandmother passes away, leaving behind Living Trust with a single asset (the house). Will states that upon passing, house is to be sold and proceeds divided 6 ways benefitting her 6 total grandchildren.

Problem: 4 of the grandchildren and their mother still live in house, and have been paying as rent what can be afforded - about 1500/month. If house is liquidated and divided to all beneficiaries, this family loses the place they call home and a living arrangement they have been able to afford. All involved are looking to avoid this.

Trustee is the grandmother's other daughter, and mother of the two other grandchildren beneficiaries. Her idea at present is going to be to purchase the house herself (using traditional financing - high interest rate) and make the payment affordable for the family's rent to cover by arranging the sale well below market value and putting up a down payment of 30+ % of her own money, resulting in a PITI of ~1500. She will get each beneficiary to sign off on allowing this to happen, lessening their inheritance cash-wise but keeping the family in a home.

My idea is that the trustee daughter could purchase the home, but could do so instead through a sort of owner-financing where the Trust finances the asset to her directly rather than buying it in full at great cost and taking out a mortgage on an already paid for property:

- Property is in Trust and is fully paid off,

- Trust finances the property to Trustee for closer to market value, and payment can still be set at 1500

- No/less down payment required

- Any interest rate, maybe 0

- Tenant family makes rent payment of 1500, which pays off the property and pays into Trust

- Beneficiaries' % share accrues gradually as payments are made

- Set future balloon payment if necessary (if Balance required at a certain time, for college, etc.)

This would decrease the out-of-pocket cost for the Trustee purchaser, and increase the amount that each beneficiary will receive (eventually).

I have no Trust experience, though, and I'm hoping to hear from the experts. What is possible? What am I missing? What is the best solution here? 

Thank you for taking a moment and for any advice you have!