A California trust offers a tremendous amount of protection not available with any other estate planning device. Property held in trust can be controlled even after death. For example, property can continue to be held in trust until a child reaches a certain age or until a beneficiary completes a drug treatment program. For most people, real estate is their most valuable asset. Understandably, then, some hesitancy with regard to transferring real estate into trust is normal. Fortunately, California’s trust laws provide favorable treatment for those considering transferring real estate into trust.
Placing Real Estate in a Trust
California does allow real estate to be placed in a trust. Real estate is among the most popular types of property held in trust, usually because it is the owner’s most valuable asset. The process for transferring real estate into trust is fairly straightforward. A deed is prepared and recorded which transfers the property from the owner to the trustee of the trust, which is usually the same person as the owner. For example, a deed might transfer title “from John Doe” to “John Doe as trustee of the John Doe Family Trust.”
California law provides that property taxes are reassessed upon a “change in ownership.” Whether transfer to a trust affects property taxes is a complex area of law. However, if the property is transferred to the owner’s own revocable trust, the property is typically not reassessed for tax purposes. Similarly, when the property is eventually passed to the beneficiaries of the trust, the property is not reassessed, provided that all the beneficiaries of the trust qualify for an exclusion, meaning a surviving spouse, registered domestic partner or child. It is important to file a Preliminary Change of Ownership Report with the County Assessor to avoid reassessment when the property is transferred into trust. If property taxes are of great concern, consult a licensed California attorney for advice.
Selling Property in Trust
Assuming that the trust is a revocable trust, meaning that the trust can be modified or revoked during life, the property may still be sold. One method of selling real estate held in trust is to transfer the property directly from the trust to the buyer. All transfer documentation would then be signed by the trustee of the trust. The second method is to transfer the property out of the trust to the owner as an individual. The owner would then sell the property as if no trust exists. This second method is the more common method.
- “Complete Plans for Small and Mid-Size Estates”; Continuing Education of the Bar; 2009
- “Drafting California Revocable Trusts”; Continuing Education of the Bar; 2009
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