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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should the action taken by the record Trustee be disallowed under the terms of the Trust, should the Trust have been revoked “off record” or should the record Trustee have been removed without constructive notice (recordation).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.

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Manhattan Beach, CA 90266
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