How to Fund a Trust with Real Estate
Real estate, land, a house or home. Whatever you call it, about two-thirds of us have it and a lucky few have more than one. Regardless of what state you live in, we would put money on the fact that any real property you have should be titled into a living trust to avoid a probate and save your family time, money and sanity. In a previous post, we talked about what assets should go into your living trust. Now let's talk about how we actually get the big one in there - real property.
Firstly, when setting up your living trust, you are always going to sign either a general assignment of your assets to your trust, an assignment for specific assets or a schedule listing your trust assets. Some attorneys make you do all three. However, for real estate, due to how important land ownership is, these assignments and schedules referenced above will not be enough. At most, they evidence your intent to hold specific assets in your trust.
How then, do we make sure your real property is in trust? By the same method we do everything else with real property - a deed.
When you are signing your trust and the other documents referenced above, you should also be executing a deed transferring the property from yourself as an individual, to the trustee of your trust - typically yourself but with “, trustee” behind your name. Yes, if you are the trustee of your own trust, you need to transfer the property to yourself. It's a legal requirement that assets that are to be put in trust, need to be delivered to the trustee. That deed will also be transferring the property to yourself as trustee of your trust to then be held in said trust.
In practice, it is much simpler than that. For example, Johnathan Kent will then grant the property to Johnathan Kent, Trustee of the Kent Family Trust. Now let's say Johnathan was married when he acquired the property. Johnathan Kent and Martha Kent, as husband and wife, grant the property to Johnathan Kent and Martha Kent, Trustees of the Kent Family Trust.
Now that Johnathan and Martha have signed their deed transferring the property to their family trust, they're done right? Not quite. Legally speaking, yes, they can stop there. So long as their signatures were notarized correctly and the technical requirements of the deed are met, that transfer deed is effective upon signing and their family home is now in trust. However, the next step the Kents should take is to record that transfer deed with the local county recorder to have that transfer of the property to trust be reflected in the chain of title for the property. That gives the world notice that the property is in trust and who is managing it - Johnathan and Martha as trustees. This is ensuring there is no question they intended to hold their property in trust and their son Clark need not step anywhere near the local probate court after mom and dad pass away.
Another aspect to know is what kind of deed is used to perform this transfer. Keep in mind, there will be a little variation depending on the state the property is in and maybe even the county as well. However, for the most part, you are going to be using one of three deeds: quitclaim, grant, or warranty deed. They are all going to look almost identical but there will be some subtle wording differences between the three leading to big differences between them. Now we won't be covering those differences in depth here - that's a topic for a future video - but here's a brief overview.
Quitclaim deeds only transfer ownership but make no claims as to the validity of that ownership or whether or not there are any encumbrances on the property like a tax lien or mortgage. Essentially, "whatever interest I may have, I am transferring that to you, the recipient."
Grant Deeds and Warranty Deeds are very similar and are the preferred method for transferring title to property - whether it to be to a trust or a buyer during a sale. This is one of those state differences. Generally, one or the other will be the typical (or required) method of transferring title. Each, to some extent, make some guarantees or warranties that the person doing the transferring has valid title and that there are no encumbrances. Here in California, we almost exclusively use Grant Deeds.
One final point to keep in mind, even if you DIY your trust, something we stress not to do, you should NOT DIY your transfer deed. Bad trusts can typically avoid probate at the very least, but bad deeds only ruin everyone's day and, perhaps more importantly, their wallets. We have seen too many problems caused by DIY deeds: property taxes quadrupling, the wrong people getting on title, the wrong people getting off title, not even making it clear who is supposed to be on title in the first place, and the list goes on.
Thus, your best bet is to hire an estate planning or at least a real estate attorney to draft the deed correctly and record it in the chain of title. If you are averse to seeing an attorney for any reason, then your second option is to go to a title company since they will know how to put a deed together. Although, you should always double-check their work as we have seen problems arise because someone at the title company only had experience in real estate sales, so trusts were a new concept and almost caused a massive probate for the family after mom and dad died. However, that's a story for another day...
BETHEL LAW CORPORATION
ESTATE PLANNING | ELDER LAW | BUSINESS PLANNING
CLICK HERE OR CALL US AT 909-307-6282 TO SCHEDULE A FREE CONSULTATION.
