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The Golden Rule & Vital Importance of Making Sure Your Real Estate Property Is Always Titled In Your Living Trust

It is best to begin this discussion about real estate property be reiterating the  “Golden Rule” of living trusts. That is, if you want your living trust to pass the assets then all of the property and assets that you own now — and any acquired in the future — must be titled and maintained in the name of your trust (except retirement plans). While following this rule is always wise, nowhere is it more vitally important than when it comes to real estate property — and nowhere do people get caught off guard more often (after they establish a trust) than with newly acquired or refinanced real estate. Read more below about the common mistakes many make with new and refinanced property.

What is Real Property? 

Generally, real property is any whole or partial ownership interest or right to land, whether or not there is a house or building on it. Oil and mineral rights are also a real property interest. Mobile homes are not a real property interest (but if you own the land it sits on that is a real property interest).

The Mortgage Holder Does Not Own The Property — You Do

Contrary to an often mistaken belief, you are the full legal owner of your real estate property, regardless of any outstanding loans used to purchase the property (or funds obtained through equity loans). The lender does not enjoy any ownership interest, but rather holds something similar to a lien against the property. Generally, the only known exception to this is a Cal-Vet loan and in rare instances where you are purchasing the property via a Land Sale Contract.

You Must Execute A Deed For Each Real Property Interest That You Own

Whether you now own 100% of a piece of real estate or, own a part interest as co-owner, it is vitally important that you execute a deed for each whole or part interest – conveying and transferring it to your trust. (This rule also applies to any whole or part interest that you acquire in the future.)

What Documents / Information You Need to Supply

To transfer your real estate to your trust requires you to furnish a copy of the deed (or have us obtain it) for each and every real estate property that you own (this includes partial interests and timeshares). Generally this is the deed (document) signed by the last owners which conveyed (transferred) the property to you – usually when you purchased the property. It is also possible that you received the property through a probated inheritance in which case you need to provide a copy of the final distribution order of the probate court. It is critical to arrive at any trust appointment with copies of your deeds, including the address for each piece of property as well as the property tax parcel number (APN, Assessors Parcel Number, etc.).

For A Minor Charge We Can Usually Obtain A Copy of The Deed

Thanks to evolving technology, in many (but not all) cases we can now obtain a copy of your deed form a service we subscribe to. The charge for this is generally $20 per deed.

Beware: The Most Common Pitfalls & Mistakes With Real Estate & Living Trusts

Common Mistake #1: Forget to Title Newly Acquired Property in Trust.

Over time, people tend to acquire new real estate after they establish a trust (a new family home; a new investment; an inheritance; helping their children purchase a house, etc.). Problem is many times they forget to title or transfer their newly acquired property to their trust. The unfortunate and costly consequence to the family is often probate where the processes and costs for real estate are especially burdensome, drawn-out, and expensive. By its very nature real estate translates into higher probate fees since it tends to be the most valuable of assets – and remember, probate fees are calculated on the gross value not net (no deductions for mortgages, debts, or costs). In the final analysis, nothing triggers probate quicker, more often, and in such a major way as real estate. If you wish to avoid probate and for your trust to pass your property then you need to make sure that all of the real property that you own now and any you acquire in the future is properly tilted in the name of your trust by immediately executing and recording a deed transferring it to your living trust.

Common Mistake #2: Property Removed From Trust At Refinancing

By far the greatest risk to trust real estate is the refinancing process (even if you have previously put your property into your trust). That’s because many (if not most) lenders require the (loan) real property to be removed from the trust until the re-finance is completed. As a result countless properties are removed from living trusts every year.

In a perfect world everyone would sign and record a deed titling the property back to the trust immediately afterward– except that is not what is happening most of the time. In fact, with the primary focus on the refinance (not the trust) and in signing a dizzying number of documents, the removal from the trust tends to barely (if at all) register on people’s conscious radar. Even when it does it seems the overwhelming majority forget to put the property back into their trust. Again, the unfortunate consequence to the family is often probate where the process and costs for real estate are especially burdensome, drawn-out, and expensive. If this is the case (and you want your trust to pass your property) you definitely want to make absolutely certain you have executed and recorded a deed re-titling your real estate in your trust. If you have refinanced a property you should probably assume that the property is out of your trust if you are unable to verify otherwise. Unless you are able to confirm that the property is currently titled and recorded in your trust our advice is to execute and record a deed to your trust as soon as possible.

If you would like our help in transferring your property to your trust please download and submit our deed request package by clicking the button at the top of this page.

Non-California Out-of-State Deed Disclaimer

DISCLAIMER: While many California law offices refuse to prepare out-of-state deeds (because of the impracticality of keeping up with 3,143 counties across the United States), we do not believe that approach is necessarily in your best interest — which is why we offer to prepare many out of state deeds. Yet, if you elect for us to prepare an out-of-state deed it is with the following explanations, qualifications, and conditions discussed herein.

Why It Is In Your Best Interest To Have Immediate Written Notarized Evidence:

Remember, nothing triggers probate in a bigger way than real estate that is not titled in the trust — making it a poor strategy to not have some written evidence that you consider it part of your trust, even if it is only an interim step. That is why we believe first and foremost, as someone with a living trust, it is in your best interest to have immediate written, signed, notarized evidence that you consider your property a part of your trust. That is why we do offer to prepare transfer deeds for non-California real estate. This is truly what we are trying to accomplish in the preparation of any deed on your behalf.

Our Deeds Are Designed to Satisfy the Statute of Frauds: Adopted in some form by all 50 states, the Statute of Frauds sets forth the general requirements for a court-enforceable transfer of real estate. Almost universally, those requirements are met when you have a verifiably signed writing that sufficiently describes the property and identifies the transferor (grantor) and transferee (grantee). While from state to state you may find slight differences in styles, customs, formatting, and recording requirements you will always find these same essential elements present in any and all deeds that convey real estate in the United States. These are the exact same elements we include in every deed we prepare.

Deed Formatting Requirements (for recording) Vary From State To State: Generally, we are able to draft deeds that keep up with and satisfy these requirements. In fact, in 35+ years we don’t know a single instance where one of our out-of-state deeds failed for validity or wasn’t recordable one way or the other. Even given some small chance there is somehow a deficiency in formatting or recording requirements, it is highly likely that a court of law would approve it as a valid transfer of the property in trust (because it satisfies the Statute of Fraud and demonstrates the intent that the property is held in trust). That is why, we believe it is in your best interest to immediately execute a deed because a signed deed that may be lacking in some recorder’s formatting requirement is still likely to provide immediate protection.

 Recording an Out of State Deed is Your Responsibility:

Many Counties Make Recording the Deed Easy: In the days past, recording a document was as straightforward as submitting the document along with a recording fee – and thankfully there are still states and counties that stick to this original intent of our recording system. If the property is located in such a jurisdiction, recording the deed will be as simple as mailing the deed in with the proper recording fee.

Other Counties Require Forms to Accompany the Deed: Many states, counties, and cities, have now also made the recorder’s office an agent of the “taxman” and this has had the effect of introducing the requirement for additional paperwork that must be submitted with the deed when recording it. It’s important to emphasize that in nearly all jurisdictions, transfers to a revocable trust are exempt from reassessment, transfer taxes, and other taxes — yet you still have to complete and submit required forms. In many jurisdictions this paperwork is straightforward, in others, it is slightly involved; and in a few (Hawaii for instance) it is so involved you usually need a local professional to help guide you through it.

It’s All About Checking the Right Boxes and Necessary Verbiage. Thus, in recording a deed to your trust, it’s all about discerning which form to properly fill out, what boxes to check, or what “magic verbiage” is required. In California for instance, you must submit a completed PCOR (Preliminary Change of Ownership) form, checking the box on that form that states it is a transfer to your revocable trust (and thus exempt from taxes or reassessment). A few California counties even require a second form called a DTT where again you indicate it is a transfer to a revocable trust (thus is exempt from a documentary transfer tax). Point being, that other states and counties impose similar requirements with forms of different names.

Most Clients Have No Problem Plus You Have The Luxury of Time. Though we advise recording, keep in mind that there is little need to rush to record a trust transfer deed because the transfer occurs and is fully valid the moment you sign your deed. Recording only makes it public record and you can do that anytime thereafter (Unlike when you are purchasing a property, there is no need to rush to protect yourself against yourself.) This affords you the luxury of time to research and discern what is necessary to record the deed by calling the county or visiting the county recorder’s website where the document is to be recorded. In the end, most of our clients have no problem with this.

Recording Assistance for Out-of-State Deeds is a Separate Fee Starting at $250: There is a separate fee (minimum of $250 depending on the state) if you want or require assistance in recording an out-of-state deed (if more is needed additional feed will apply and there are few states, counties, and cities that we cannot help with).  In truth, we would rather you save your money (not have to pay us). That is why our suggestion is to first research recording requirements through the county and give this a try on your own (as many are easy, and clients are usually able to handle this). Generally, the worst that can happen is they typically mail everything back to you detailing what more they need (in which case you simply comply and send it back in). As an alternative, you can always engage someone in the out-of-state county.

Out of State Deed Disclaimer (read carefully): Understanding the subtleties discussed herein are important considerations as you ponder whether you want to pay us to draft a deed — because should the deed be returned by the recorder’s office because of formatting or it is deemed insufficient because of other requirements we will not issue a refund for preparation of the deed nor will we redo the deed without charge. (Any redo and the charges will be entirely at our option.).

If you are more comfortable retaining someone local (to the property) we encourage such. That said we have many clients who try to first see if they can use and record the deed we prepare. The choice is yours.