September 6, 2010

Trust Funding

In order for a trust to be valid in California, the trust must own property.

The legal term for trust property is "res" if you want to impress your dinner party guests with Latin. The trust must identify some piece of property that is owned by the trust whether it is intangible personal property, a patent, personal property, a piece of jewelry, or real property, a house. 

The way in which you transfer ownership of property to a trust is to name the trustee of the trust as the owner of the property. The reason for this is because the trustee of a trust is considered the legal owner of the property. For example, if I transferred a condo I own into a trust but named Thomas Thucydides as the trustee of the trust, then if somebody was checking ownership records of that condo they would discover that Thomas Thucydides, not Shahram Miri, was the legal owner of the property.

It is relatively easy for a client to transfer many types of property to their trust. If a client has a bank account they would go to the bank and ask the bank that the account holder's name be changed from, for example, John Smith to John Smith, trustee of the Smith 2010 revocable trust. If a client owns stock, the stock transfer agent will have forms available in order to effect a transfer of ownership. 

However, the one piece of property that is most likely too difficult for the lay person to transfer into their trust is their home.

Transferring one's home into a trust is especially important because a home will generally wind up in probate if it is not held in trust. The reason why transferring a home into a trust is cumbersome for clients is because deeds require that certain information be included on it such as names of seller/transferor, buyer/transferee, the cost of documentary transfer tax, the legal description of the property, etc. Since lay people infrequently write their own legal documents, often times people will pass along the burden of writing and recording a deed to an attorney.  Otherwise, the consequences of not  transferring one's home into a trust are steep due to the likelihood of probate with its associated cost and time.