Requesting Rent from a Trust

[Christa P.]

Good afternoon!  I just had a prospective tenant ask if I accepted funds from a trust.  She didn't describe it that way exactly, but that is what I finally figured out she was saying.  Anyway, sounds like I have to fill out an IRS form to request the funds and will get paid for the full year and deposit in advance.  Sounds awesome, right?  But is it too good to be true?  Have any of you ever dealt with this?  It seems the risk is that the check may not get paid, but of course, just don't let them move in before the check clears...  Other implications?  Thoughts?  Concerns?  THANKS!!

[Joe Splitrock]

Quote from @Christa P.:

Good afternoon!  I just had a prospective tenant ask if I accepted funds from a trust.  She didn't describe it that way exactly, but that is what I finally figured out she was saying.  Anyway, sounds like I have to fill out an IRS form to request the funds and will get paid for the full year and deposit in advance.  Sounds awesome, right?  But is it too good to be true?  Have any of you ever dealt with this?  It seems the risk is that the check may not get paid, but of course, just don't let them move in before the check clears...  Other implications?  Thoughts?  Concerns?  THANKS!!

 Trust could be the result of many different situations, but usually it means someone left them money but didn't trust them to manage it themselves. Have you done standard screening on the tenant (credit, background and employment)? Although it seems easy to get the trust money, you still want to understand who you are placing in the property. 

I would also only accept a years rent in advance if it was paid via cashiers check. The trust should be able to accommodate this. Checks can clear and still be cancelled weeks or months later. 

Also be aware that the money is technically not yours until time passes. That means you can't spend it. You need to hold the funds in a bank account and you can take each months rent as she lives there. Some states require you to hold it in an interest bearing account. 

There are several circumstances where you may be required to refund the money and if you spend it, that could be considered fraud.

- If there was a fire or some type of natural disaster rendering the property inhabitable, you would be required to refund.

- If the tenant moved out, you are required to make best effort to rerent. In that situation, they are owed prorated rent after the new tenant takes occupancy - minus reasonable leasing fees.

- If the tenant died before completing the lease, it would terminate tenancy and the estate could request refund of future rents.

In general, you should always take first months rent and security deposit in only guaranteed funds (cashiers check or money order). Don't let the cash blind you to following your standard screening practices. A trust will be impossible to go after, so if she damages the property or stays past the year without paying, you are stuck suing her. Check her credit report and make sure she is responsible.