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By: Scott Grossman on November 15th, 2023

How to Transfer Trust Property 

When transferring property to a trust in California, the trustee has several vital responsibilities and actions to consider:

  1. Designate a Successor Trustee: When establishing a living trust, the individual will designate a replacement trustee. In the event of the individual’s passing, the successor trustee transfers the assets to the designated heirs. 
  2. Keep Trust Property Separate: The trustee must keep the trust property separate from other property not subject to the trust. That ensures the assets are designated property of the trust. 
  3. Notify Beneficiaries: The trustee must notify the beneficiaries of all material facts related to the sale or exchange of trust property. That includes acting impartially and considering the differing interests of the beneficiaries.
  4. Act in the Best Interest of the Trust: The trustee has a duty not to use or deal with trust property for their profit. Or any purpose unconnected with the trust. They must also take reasonable steps to preserve and make the trust property productive.
  5. Transfer Real Estate to the Trust: The trustee must ensure the proper transfer of real estate to the trust, including ordering a copy of the existing deed, preparing a new deed, and identifying the current and new owners. It is advisable to seek legal guidance during this process.
  6. Manage Property and Assets: The successor trustee will manage the property if real estate is in the trust. And any other assets named in the trust in the event of the grantor’s incapacity or passing.
  7. Ensure Proper Transfer Out of a Deceased Parent’s Trust: If the property is being moved out of a deceased parent’s trust, the successor trustee can sell the property or transfer ownership to the decedent’s children. They do this by filing an affidavit and recording it with the county recorder. Suppose the property is to be kept by the family. A new deed transferring ownership to the beneficiaries named in the trust is necessary.

The trustee must fulfill these duties diligently and seek professional guidance to ensure compliance with California trust laws. That is for the proper execution of the property transfer process.

What Do You Need to Transfer Trust Property in California?

Transferring trust property in California is tricky; the following steps describe how to transfer trust property in California properly: 

  • Obtain a copy of the existing deed to confirm the current title. Ensuring no one else has legal rights to the property. 
  • Prepare a new deed that transfers the title from the grantor to the name of the trust and identify the current owner and the new owner, which would be the trust. Sign the deed before a notary and file it with the local county recorder’s office where the property is located. 
  • File a Preliminary Change of Ownership Report simultaneously with the deed at the county recorder’s office where the real property is situated. That notifies the county assessor’s office about the transfer so that the property’s value will be reassessed.
  • Ensure that the exact legal description in the existing deed appears on the new deed to avoid potential probate proceedings to transfer the property to beneficiaries in case of improper execution.
  • Suppose there is an existing indebtedness on real estate, such as a mortgage or deed of trust. In that case, it may be necessary to contact the financial institution holding the mortgage or deed of trust before placing it in the name of the trust. 
  • If the family keeps the property, a new deed transferring ownership to the beneficiaries named in the trust is necessary. The new deed must also be notarized and recorded with the county.
  • Suppose the trust property transfers from a deceased parent’s trust. In that case, the successor trustee can sell the property or transfer ownership to the decedent’s children by filing an affidavit and recording with the county recorder. 

It is important to note that transferring trust property in California involves legal and administrative steps. It is advisable to seek guidance from a skilled California estate planning attorney or a title insurance company to ensure the proper execution of the transfer. 

Benefits of Transferring Property to a Trust?

Transferring property to a trust in California offers several benefits, including:

  1. Avoiding Probate: Property held in a trust can bypass the probate process. That leads to faster distribution of assets, easier accessibility for beneficiaries, and potentially lower distribution costs than going through probate.
  2. Privacy and Estate Planning: A trust can provide privacy and valuable estate planning treatment. That allows the grantor to outline specific instructions for the distribution of assets after their passing.
  3. Minimizing Tax Consequences: Transferring real estate into a trust via a trust transfer deed can help minimize tax consequences. For example, after real estate becomes part of the trust and then sold, the responsibility for paying capital gains tax depends on the type of trust. The grantor is typically responsible for paying the capital gains tax in a revocable trust. In contrast, in an irrevocable trust, the tax is usually treated as income and taxed to the trust itself. 
  4. Avoiding Guardianship or Conservatorship: Transferring property to a trust can help avoid guardianship or conservatorship. And can provide a clear plan for managing assets if the grantor becomes incapacitated. 
  5. Faster Asset Distribution: Trusts can facilitate more immediate asset distribution to beneficiaries, as the trustee can administer the trust according to the terms outlined in the instrument, potentially simplifying the distribution process. 
  6. Asset Protection: While a trust itself may not provide liability protection, paired with a Limited Liability Company (LLC), it offers comprehensive protection and estate treatment for the property. 

It is essential to consult with legal professionals experienced in California trust laws and tax professionals to understand the benefits and implications of transferring property to a trust in California. 

What Can Go Wrong?

These are the potential issues and risks to consider when transferring trust property. 

  • Incorrect Transfer: Ensuring property transfer to the trust is executed correctly is essential. It fails to follow the proper legal procedures for transferring property into a trust. That includes not filing the required Preliminary Change of Ownership Report simultaneously with the deed at the county recorder’s office. That can lead to complications and potential legal issues. 
  • Insurance Coverage: Transferring real estate, bank accounts, investments, and other assets to a trust may require notifying the insurance company. That is to update the ownership details. Please correct the insurance policy to avoid coverage issues. Or a lapse in coverage, potentially exposing the property to risks. 
  • Mortgage and Indebtedness: When transferring property with an existing mortgage. It is crucial to address this with the financial institution holding the mortgage or deed of trust before placing the property in the name of the trust. Failure to handle existing debts properly can lead to complications and potential legal consequences. 
  • Probate Complications: Failure to properly transfer real property into a trust can result in the estate going through probate. That can lead to increased time and expenses in settling the estate. 

To mitigate these risks, seeking guidance from legal and financial professionals experienced in trust and estate planning is advisable to ensure a smooth and legally sound transfer of trust property in California.

More on your Trustee breaching their fiduciary duties.

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