WHY A PROPERTY SHOULD BE IN A TRUST
Posted on August 16, 2018 at 6:05 pm | Uncategorized
There are many reasons to have title to real property vested in a ‘trust’. One of the most important reasons is to avoid probate when the current parties on title pass away. This is not an issue an age specific issue as many younger property owners with multiple owners on title believe probate will never be an issue if one of them passes away (usually a spouse) because title is held as joint tenants with right to survivorship or as tenants in common where undivided interest in real property is vested to multiple owners/investors.
Although the aforementioned ways to hold title would prompt a decedent’s property transfer without a required probate, if one party on title passes to the decedent (in the case of a married couple), the property is now at risk of going into probate if the sole owner experiences an illness or is the victim of a crime (which we see more frequently in today’s society) and passes away with placing the property in a trust.
Most property owners who reside in the home they purchased do not consider the house an investment when in fact the capital it took to buy the property as well as the equity derived over time defines the residence as an asset, which make any action an owner takes relating to the property practical ‘business measures’.
Just as is the case with other types of assets, there are risk with any business venture and with that the proprietors must enact what are called ‘risk management’ procedures. A property not being vested in a trust is an inherent risk property owners take for various reasons. One reason is financial. We spend an enormous amount of money each year as the almost monthly there is some type of government sponsored day for recognizing an event or a person where consumers spend thousands of dollars to boost the economy
Wouldn’t it be prudent to take some of the money we spend on holidays and other days of recognition to invest in something that would avoid the risk of losing more money because a property was not properly vested for the decedents of a property owner to take title upon their passing?
A probate is the legal process of settling the business asset matters of a party who is deceased and also considered a civil trial, which involves a number of activities and responsibilities that can be costly in terms of attorney fees, administrator fees, and court costs. Not to mention the time frame it takes to complete the process which is estimated at a two-year maximum.
Even if there is a will, the courts will still have to determine its validity as well as whether the persons named in the will (known as devisees) will receive legal title to the property.
Property where the owner transfers title to their children as opposed to placing the property in a trust to save money will end up also transferring the ‘cost basis of the property to the children that will result in capital gains taxes of between 25-35%. Then there could be creditors owed money by the decedents for debt left by the deceased owner(s) including unpaid property taxes.
A trust is a legal document that provides instructions for the assets of an estate a party or multiple parties establish while living as opposed to the statutory mandate that the California Probate Code determine the disposition of assets after a person is deceased. A party can be the trustee of their own living trust for the duration of their life. The trustee can also name a ‘successor trustee’ who will transfer ownership of the assets including real property to the beneficiaries.
The living owner(s) are taken off title as sole owners and have title vested as trustees and the successor trustee can come in to manage the affairs of trustee if they become unable to manage their own business matters. Constrictive notice is required to indicate the property is in a trust. This is achieved when a deed to the trustees of the trust is established and recorded to avoid a probate case filing.
The creator of the trust or trustor (also known as the grantor, who can also be the trustee who manages the assets in the trust until incapacity or death. One of the most useful tools of a trust is it provides instructions on the allocation of business matters relating to the assets.
If you would like more information or a referral to some great estate planning firms, feel free to give us a call at Global Realty Group (310) 538-6884.