Reed: Restrictions forbidding sale of property are limited
The 350 acres Frank, as the only grandchild, inherited from his maternal grandfather has been in the family for four generations and Frank wants it to stay that way if possible.
Frank has instructed his lawyer to prepare a trust benefiting his children and grandchildren. He plans to transfer the 350 acres into the trust and wants to include a provision that forbids sale of the property for the next 150 years.
Can Frank legally include this restriction in the trust? The short answer is “No.”
Restrictions on alienation of real property disfavored in the law
Frank’s desire to retain property that has been in the family is a frequently raised issue. The law has always disfavored restrictions forbidding sale of real property. In fact, it has long been the law in Texas that when property is transferred subject to a condition absolutely restraining the transferee from parting with his interest in the property, the condition is void.
The basis for this prohibition against alienation of property is that, as a matter of public policy, restrictions should not have too much of a negative impact on the stream of commerce. In other words, it is in the best interest of the public that commerce flow freely. Forbidding the sale of real estate forever has never been an option for people in Frank’s situation.
Restrictions that are not “absolute” can be valid. That is, property owners can create partial restraints if those restrains are deemed “reasonable.” Restraints for a “limited time and for a reasonable purpose” are lawful. The kicker is how to determine what is an acceptable limit of time and what is a reasonable purpose.
Restriction on limiting sale of real estate in trusts created after Sept. 1, 2021
The Texas Legislature recently passed HB 654 which prohibits a person’s including in a trust a provision stipulating that the real estate may not be sold for a period more than 100 years. This restriction applies to all trusts created after Sept. 1, 2021. Frank cannot include in his trust a prohibition against sale of the property for 150 years; however, apparently, he could restrict the sale for 100 years or less if that restriction is for a reasonable purpose.
Sandra W. Reed practices Elder Law in Somervell County, handling probating of estates, drafting of wills, trusts, powers of attorney and deeds as well as estate and Medicaid planning. She lives on beautiful Chalk Mountain and can be reached at 254.797.0211; 817.946.2809 or at email@example.com.