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Trust
Transactions
So, you
take a listing for sale of a property and discover that the
current ownership rests in a “Family Trust.” It’s
not too early to consider challenges that might occur at the
close involving the Trust ownership. So, what should you do
to insure a smooth transaction?
It’s
always a good idea to have either a Title Officer or ATO at
your Title Company review the Trust documentation. Depending
upon your transaction, the age of the Trust and the parties
involved, this may include:
•
A complete copy of the Trust Document.
• A Trust Certification.
• Death Certificate for any Deceased Trustee
• Physician’s statement relative to capacity of
a Trustee under Doctor’s care.
Normally,
a Title Company with knowledge of Trust law will not require
you or your client to provide a complete copy of the Trust
Document. This type of request should only occur when there
is some sort of anomaly in the Title, such as the death of
one or more of the original Trustees. It’s a good idea
to assure your client, when this request is made, that the
Title Company has no desire to see what their assets are,
but rather that the terms of the trust, after death of the
original Trustee(s), are properly carried out. It will also
be necessary, if one or more of the original Trustees have
died, to produce a County certified copy of the Death Certificate
for these parties. This should be supplied to Escrow, along
with a copy of the Deed wherein the Trust acquired title,
so that a form called an “Affidavit, Death of Trustee,
which
must be recorded with the other transaction documents at close
of Escrow can be prepared.
If the
original Trustees are still living, all a Title Company will
normally require is a Trust Certification.
Lawyers Title Company provides this form for those Preliminary
Reports where a Trust is in title. It protects both the Escrow
Company and the Title Company from legal recourse should the
action taken by the record Trustee be disallowed under the
terms of the Trust, should the Trust have been revoked “off
record” or should the record Trustee have been removed
without constructive notice (recordation).
Should
your Trustee be incapacitated, physically or mentally, you
will be required to obtain a statement from his/her physician
as to his/her competency to understand and execute the transaction
documents. Most often, Trusts will provide that, should a
physician state that the Trustee is not competent to handle
Trust affairs (or their own affairs) a “Successor Trustee”
will be allowed (required) to act. The name(s) of the Successor
Trustee(s) can be found in the body of the Trust, generally
in a section marked “Successor Trustee.”
It is
also a good idea to confirm that all of the signatories necessary
for execution of transaction
documents will be available and “in town” throughout
the transaction. This is because, generally speaking, a Power
of Attorney cannot be used to execute documents on behalf
of the Trustee. The only time this is allowable is if the
Trust EXPRESSLY states that a Power of Attorney can be used.
Some Trusts have the Power of Attorney form incorporated in
the Trust Document. Again, there must be an express provision
for use of the Power of Attorney within the body of the Trust.
A better alternative to the Power of Attorney would be for
the “vacationing” Trustee to temporarily “resign”
as Trustee and allow the Successor Trustee to act in his/her
stead. As a last resort, if there is no Successor Trustee,
the absent Trustee, before leaving town, can execute an Amendment
to the Trust expressly providing for use of a Power of Attorney.
Title
to Trust property, according to California State law, must
be held in the name of the Trustee(s) of the Trust: “John
Smith and Mary Smith, Trustees of the Smith Trust under declaration
dated 6-4-1974”
is a correct vesting. “The Smith Family Trust” is
not a correct vesting. If ever in doubt as to how to vest
Trust property, call your Title Officer. People have many
reasons for transferring property into a Trust. Many people
do this to avoid or reduce certain taxes. As to real property,
keep in mind that holding property in a Trust does not guarantee
protection from reassessment of real property taxes under
Prop. 13. This reassessment does not normally occur at the
time the property is transferred into the Trust,
but can occur upon the death of one or more of the Trustees
or upon distribution of the Trust
property to the Beneficiaries under the Trust. For those Trusts
where the original Trustees are
parents of the Beneficiaries, this reassessment can be avoided
by filing an exclusion under
Prop. 58, a form for which is readily available on the County
Assessor’s Web Site. There are
also many income tax ramifications involved in holding property,
real and personal in a Trust.
In matters involving Trust property and taxation, it is always
wise to consult legal counsel
before choosing to create and transfer property into a Trust.
1640 So.
Pacific Coast Hwy.
Redondo Beach, CA 90277
(310) 375-0583
(310) 375-9616 Fax
2501 No. Sepulveda Blvd., 2nd Floor
Manhattan Beach, CA 90266
(310) 546-7611
(310) 545-0515 Fax
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