FUNDING A TRUST

If you created a Living Trust specifically to have your California home pass through the trust and avoid formal probate, the home generally needs to be properly transferred into the trust. Simply signing a Living Trust does not automatically place your house in it.

For real estate, transferring the property into a Living Trust ordinarily involves preparing and recording an appropriate deed showing that the property is held in the trust. California Courts explains that when assets have actually been placed into a Living Trust, they should pass to the trust beneficiaries without having to go through probate court.

This process is commonly called “funding the trust.”

For California homeowners—and particularly homeowners with valuable Marin County real estate—funding can be just as important as creating the trust itself.

People sometimes imagine that putting a house into a trust means giving the house away.

With a typical revocable Living Trust, that is not what is happening. Instead, ownership of the real property is documented so that it is held through the trust.

For example, instead of a deed showing ownership solely as: John Smith

the new deed might identify ownership along the lines of: John Smith, Trustee of the John Smith Living Trust dated [date]

The precise vesting language depends upon the trust and the circumstances.

California Courts recognizes “in a trust’s name” as one of the ways Title to Real Estate can be held and recommends reviewing the deed to determine how property is actually owned.

Because your trust document and the title to your house are two different things.

You can have a beautifully prepared Living Trust sitting in a binder at home.

But if the deed to your house still shows that you own the property individually, the house may not actually be a trust asset.

California law requires a trust involving real property to be evidenced in writing, including through a written instrument conveying the trust property.

That’s why preparing a Living Trust without addressing title to the home can leave an estate plan incomplete.

Potentially, the house may not receive the probate-avoidance benefit you intended.

California Courts explains the basic rule clearly: when you die, as long as you have put your assets into the trust, those assets should go to the trust beneficiaries without having to go through probate court.

That qualification matters.

If your home is not owned by the trust and no other non-probate transfer method applies, additional legal proceedings may be necessary after your death to transfer the property.

Exactly what procedure would be required depends upon the circumstances.

The important planning lesson is simple:

Creating the trust is step one. Funding the trust is step two.

You generally want both steps completed correctly.

Does Putting My House Into My Trust Mean I Lose Control of It?

With a typical revocable Living Trust in which you remain the trustee, transferring your home into the trust does not ordinarily mean surrendering control of your home to somebody else.

You continue managing the trust property according to the terms of the trust.

A revocable Living Trust is designed to allow you to establish a plan while retaining control during your lifetime. Your trust can also name a successor trustee who can assume responsibility under the circumstances specified in the trust. That creates continuity if you become unable to manage trust assets yourself or after your death.

Can I Still Sell My House?

Generally, yes.

Placing your home into a revocable Living Trust does not mean the house must remain there forever.

As trustee, you generally continue to exercise the powers provided by the trust and applicable law.

If you later sell the property, however, the sale and resulting assets should be considered as part of your overall estate plan.

Similarly, if you sell one home and buy another, you should make sure the new property is properly coordinated with your trust.

This is an easy estate-planning detail to overlook.

What If I Refinance My House?

Refinancing is another reason to review Title. Depending upon the lender and transaction, Title issues can arise during a refinance.

After refinancing, homeowners should verify how the property is titled rather than simply assuming that it remains properly held in the trust.

The recorded deed is what should be checked.

California Courts notes that deeds are public records available through the County Recorder’s Office in the county where the property is located.

For a Marin County property, that means checking the recorded title to confirm that it reflects the intended estate plan.

For a typical transfer into your own revocable Living Trust, California law provides an important exclusion from “change in ownership.”

California Revenue and Taxation Code §62 provides that a transfer by a Trustor into a Trust is not treated as a change in ownership for property-tax purposes while the transferor is the present beneficiary or the trust is revocable.

That means transferring your own home into your qualifying Revocable Trust ordinarily should not, by itself, cause the property to be reassessed as though you had sold it to an unrelated buyer.

However, later transfers following death or changes in beneficial ownership can raise different property-tax issues.

Those consequences should be evaluated based on the particular beneficiaries, property and circumstances.

Having a mortgage does not mean your home cannot be part of an estate plan. A mortgage and ownership of the real property are separate issues.

The deed identifies ownership of the property, while the deed of trust or mortgage secures the lender’s interest.

Because transferring mortgaged property can involve loan documents, title requirements and other legal considerations, the deed should be prepared as part of a properly coordinated estate plan rather than changed casually.

A will does not automatically place the house into your Living Trust.

And a will alone does not necessarily avoid probate.

California Courts explains that property in a Living Trust is among the types of property that can transfer without formal probate.

The distinction is important:

Your Will – Can state who you want to receive property governed by the will.

Your Living Trust – Can provide for the management and distribution of assets actually held by the trust.

Your Deed – Shows how your real estate is legally titled.

A good estate plan coordinates all three.

Many trust-based estate plans include what is commonly called a Pour-Over Will.

Its purpose generally includes directing certain assets remaining outside the trust at death toward the trust.

But a Pour-Over Will should not be viewed as a substitute for properly funding the trust during your lifetime.

If an asset remains outside the trust, additional administration may be required before it can reach the trust.

The better approach is generally to identify assets that should be trust-owned and make sure they are properly coordinated with the trust while you are alive.

Yes – A Living Trust is not the only method by which California real property can potentially pass outside formal probate.

Depending upon the circumstances, alternatives can include:

• Joint tenancy with right of survivorship
• Certain forms of community-property ownership
• A valid Transfer on Death deed
• Transfers involving a surviving spouse or domestic partner
• Other statutory procedures when their requirements are satisfied

California Courts specifically instructs families to examine the deed because ownership arrangements such as joint tenancy, transfer-on-death provisions and trust ownership can affect how property transfers after death.

California also recognizes written non-probate transfer arrangements, including trusts and revocable transfer-on-death deeds.

But these methods are not interchangeable.

A Living Trust can be part of a broader estate plan addressing not only the transfer of your house after death, but also management of trust assets during incapacity and distribution of multiple types of assets.

California permits a Transfer on Death (TOD) deed in appropriate circumstances.

California Courts notes that a TOD deed may make sense when someone’s principal significant asset is a home and there are few or no other substantial assets requiring distribution.

A TOD deed can designate beneficiaries to receive real property after death without formal probate.

But a TOD deed does not provide all of the functions of a comprehensive Living Trust.

Someone who owns substantial real estate, investment accounts and other assets—or who wants detailed incapacity and beneficiary planning—may have reasons to use a broader trust-based estate plan.

Each property should be reviewed individually.

Owning your primary residence in the trust does not automatically place your:

• Vacation home
• Rental property
• Investment property
• Second home
• Newly purchased property into the trust.

Each property’s deed should be reviewed.

This is particularly important for someone who creates a trust and then purchases additional real estate years later.

The estate plan may be excellent, but the new property may simply never have been added to it.

Verify it. Don’t rely only on remembering that a deed was signed years ago.

Review the current recorded deed and make sure the ownership matches the estate plan.

Some useful questions are:

• Is the trust named correctly?
• Is the trustee identified correctly?
• Was the deed actually recorded?
• Did I refinance after creating the trust?
• Did I buy another home afterward?
• Have I changed or restated the trust since then?
• Does my current estate plan still reflect what I want?

An estate-plan review should include the assets—not merely the documents.

If your objective is for your California home to be administered as a trust asset and receive the probate-avoidance benefits of the Living Trust, the home generally needs to be properly transferred into the trust.

Signing the trust alone does not automatically accomplish that.

California Courts puts the concept simply: assets that have been placed into the Living Trust should pass to the beneficiaries without having to go through probate court.

For homeowners, that makes one question especially important: What does the deed to your house say today?

If you have a Living Trust but don’t know whether your home is actually titled in it, your estate plan is worth reviewing.

Estate Planning for Marin County Homeowners

For many Marin County families, the home is their largest asset. A house purchased decades ago may now be worth millions of dollars. That makes proper title and trust funding particularly important.

The objective isn’t merely to own a document called a Living Trust.

It is to make sure the trust actually owns the assets you intended it to own and that the entire estate plan works together.