What Every Trustee Should Know When a Trust Owns Real Property
California houses are expensive, and for most homeowners, a house is their most valuable asset. When put in a trust, real property comes with unique responsibilities and risks for the trustee.
At Finlay Law Group, we frequently guide trustees through these issues. Here are the key points every successor trustee should know about managing real property held in trust.
Step 1: Secure the Property
Your first duty is to protect the property. That means:
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Locking doors and windows (not good enough? consider boarding if necessary)
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Removing and safeguarding valuables
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Keeping utilities on to avoid damage (like mold or frozen pipes)
If a theft or damage happens, the trustee could be held liable if they did not act reasonably.
Step 2: Confirm Title
Just because a property is listed on the trust's “Schedule of Assets” doesn't always mean it was properly transferred into the trust. You'll need to:
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Check county records for the latest deed
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Record an Affidavit of Death of Trustee if the prior trustee has passed away
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File a Preliminary Change of Ownership Report (PCOR) and Change of Ownership Death of Real Property Owner to update records with the county assessor
Step 3: Maintain Insurance
Insurance must remain current and in the name of the trust. A lapse in coverage could be devastating if there's damage to the property during administration. Notify the insurer of the change in trustee as soon as possible.
Step 4: Decide on Use or Sale
Trustees must decide whether the property will be:
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Distributed directly in-kind to a beneficiary
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Retained by the trust for rental or investment
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Sold and the proceeds divided
Beneficiaries may have strong opinions here. Professional appraisals can help establish fair market value and avoid disputes.
Step 5: Consider Property Tax Issues
California's Proposition 19 changed the rules for property tax reassessment. Some transfers to children may still qualify for an exclusion, but only under narrow circumstances. Trustees should work with counsel to preserve property tax savings whenever possible.
Step 6: Account for Expenses and Income
Trustees must track:
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Property taxes, insurance, and utilities paid by the trust
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Any rental income collected
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Repairs or improvements
These all need to be reported in the trust accounting. Remember that trustee's should also track their time if they want to get paid.
If You Are Selling Trust Real Property
If you decide that selling is the best option for the trust, which it almost always will be, here are some basic survival tips:
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Interview several seller's agents, and look for one with experience in fiduciary transactions
- Communicate early and often with the beneficiaries on the listing agreement, listing price, offers, etc.
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Disclose everything you know. Fiduciaries have special exemptions from certain disclosures, but you still must disclose everything material about the property, even in an "as-is" transaction!
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When you want to accept an offer, send a notice of proposed action to beneficiaries and ask for their signed consent
As always, keep diligent records. If a dispute arises, you will be glad that you can CYA!
Bottom Line
Handling real property in a trust is more complex than managing bank accounts or personal property. From securing the property to navigating tax issues, trustees must be diligent at every step.
At Finlay Law Group, we help trustees avoid costly mistakes and make sure beneficiaries receive their rightful inheritance. If you're managing real property in a trust, contact us today to get the guidance you need.
Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.