Transferring Trust Property

One of the primary rules when administering a trust is for the trustee to follow its terms. Probate Code §16000, Penny v Wilson (2004) 123 CA4th 596. For example, if the trust provides for an equal distribution of trust assets to 4 beneficiaries, then logically each beneficiary would receive a 25% interest. A trustee cannot simply deviate from the terms of the trust arbitrarily.

A recent unpublished appellate opinion detailed the interesting story of one trustee. 

Kiwata v. Kiwata, San Francisco County Superior Court, Case # CGC14542957   

"Years ago, Richard and Howard's parents, the Kiwatas, and their aunt and uncle, the Hironakas, acquired property in San Francisco on Collins Street. Each couple initially had a one-half interest in the property.

The Kiwatas transferred their interest into the Kiwata Family Trust, of which Richard became the trustee.

The Hironakas first transferred their interest into the Hironaka Revocable Trust and then, in late 2008 after the death of one of the Hironakas, partly into the Hironaka Family Trust (65.41 percent of the one-half interest) and partly into the Yoshiko Hironaka Surviving Spouse's Trust (34.59 percent of the one-half interest). Over several years, ending in May 2013, a series of deeds resulted in absorption of the survivor trust's interest into the family trust, such that the Hironaka Family Trust eventually owned all of the one-half interest. Upon the death of both Hironakas, Howard became the trustee of the Hironaka Family Trust, with Richard as successor trustee if Howard can no longer perform trustee duties.

In the meantime, earlier in 2013, Richard recorded two deeds. The first, recorded in February and executed by Richard as trustee, purported to transfer the Kiwata Family Trust's interest in the Collins Street property to the Richard Kiwata Family Trust. However, at his deposition, Richard conceded he never actually created the Richard Kiwata Family Trust. The second deed, recorded in March and executed by Richard as supposed cotrustee, purported to transfer 37.5 percent of the Collins Street property from the Hironaka Revocable Trust to Richard, individually. However, as just described, the Hironaka Revocable Trust by then had no interest in the property (the interest having been transferred in 2008 to the Hironaka Family Trust and Yoshiko Hironaka Surviving Spouse's Trust). Further, according to Howard's trial testimony and the trust documents, Richard was never a trustee of any Hironaka trust."

In short, for the February 2013 deed, Richard transferred a property interest to a trust that never existed. For the March 2013 deed, Richard transferred a property interest from a trust that no longer existed and was never a trustee of said trust. Naturally both deeds were declared void by the trial court for the aforementioned reasons. This decision was upheld on appeal.

Undue Influence in Estate Planning

Haste makes waste.

Unfortunately when people engage in extremely expedient estate planning, disastrous results can occur. The reason being is that legal issues are not identified and addressed due to a shortage of time. Consequently, the neglected legal issues ultimately materialize and injurious results flow.

An example of extremely expedient estate planning and its attendant disastrous outcome occurred in in the case of Mohr v. Mohr, San Bernardino Superior Court Case # PROPS1100603. According to the unpublished court of appeal opinion stemming from the case:

"Carol Slocum (decedent), the 76-year-old mother of seven children, had emergency surgery on June 26, 2011. She was in a coma for five days thereafter. In late July 2011, she was placed in a rehabilitation facility. After her condition worsened, she was admitted to a hospital emergency facility on August 2, 2011.

After her treating physicians told her she was terminal, decedent decided she needed to see her children as soon as possible. Terry, who lived with decedent, was able to arrange for most of his siblings to be at the hospital on August 3, 2011. He also arranged for a notary public (notary) with a deed to come to the hospital that day. Decedent executed the deed on that date. It served to transfer her residence from her name alone into the names of herself and Terry as joint tenants. Decedent died intestate on August 12, 2011."

Unsurprisingly, Sherri Mohr sued her brother Terri Mohr to invalidate the deed citing undue influence. 

The statement of the trial court's decision, in pertinent part, read:

"Terry brought a notary and a deed to this meeting and did not tell [decedent]. She never had the opportunity to discuss a Grant Deed with an attorney or her other children. [Decedent] knew she was dying. She was so very vulnerable to coercion. The fact that the notary told her it was a Grant Deed really does not overcome the undue influence that was present. [Decedent] knew that she had always wanted her children to share and share alike. When she was presented a document to sign, she signed it without knowing its true impact. Terry had taken advantage of his mother."

Consequently, the trial court ruled in Sherri's favor and this decision was upheld on appeal.

Proposed Recording Fee Increase to Support Affordable Housing

A bill is currently being debated in the California Senate that would significantly increase the cost to record a real estate document.

Basically any document related to real estate must be recorded with the applicable county recorder's office. For example, a deed of trust involving a home in Gilroy would need to be recorded with the Santa Clara County Recorder's Office. Since thousands of documents are recorded each day in California, California is a large state geographically and very populated, the revenue that can be generated by a recording fee increase is immense. In particular, analysis by the California Senate Transportation and Housing Committee stated that between $300M and $750M could be generated each year if the bill passes. The range is due to the fact that in some years more documents are recorded than in others. 

SB-391 (Saulnier) would add a $75 fee to every recordable real estate instrument. These funds would be allocated to principally support affordable housing programs for modest income individuals. The fee would apply to the following instruments: deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic’s lien, maps, and covenants, conditions, and restriction.

The typical cost to record a 1-page document is between $10-25. The reason for the variance is that each county sets its own recording fee. Santa Clara County charges $25 for the first page to record a document whereas Modoc County charges $10. Yes Modoc County is a California county. This bill would significantly increase the cost to record a document. For example, if SB-391 passes, to record a 1-page affidavit of death of a joint tenant in Santa Clara County would cost $100 instead of $25.  

Still, the bill does exempt the $75 fee from documents where the documentary transfer tax is in effect. For example, if a person purchases a home, the $75 fee would not apply.   

The bill's author previously attempted to pass a similar bill in 2012 but fell 2 votes shy on the Senate floor. Since the bill amounts to a tax increase, at least a 2/3 vote is required in both chambers of the California legislature. 

To be clear, this is just proposed bill. It is not California law unless it passes both chambers of the California legislature, Senate and Assembly, and signed by Gov. Brown. 

I express no approval or disapproval of the proposed bill whatsoever. This a legal blog, not a political blog.

Acknowledgment vs. Jurat

In the context of estate planning, the services of a notary are often required. For example, a client might create a trust and need to transfer ownership of their home into the trust. This requires a trust transfer deed, which may be in the form of a grant or quit-claim deed. Since the deed has to be recorded to give proper notice to third-parties, notarization of the signature is required.

The two most common types of notarial acts are an acknowledgment and jurat. 

Acknowledgment 

An acknowledgment is a formal declaration made in the presence of an authorized officer, such as a notary public by someone who signs a document and confirms that the signature is authentic. Black's Law Dictionary (8th ed. 2004).

Technically, California law does not require that the actual signer appear before the notary. This is in contrast to a jurat which does require personal appearance before the notary. Through a complicated process, witnesses can vouch for the signature's authenticity provided they appear before the notary. Still, you will save the notary plenty of befuddlement if you personally appear before the notary and sign the document, since many notaries do not know the exact procedure for this and would have to look it up.

An acknowledgment is most freqeuntly used with a deed execution.

The following is how an acknowledgment should be worded:

ACKNOWLEDGMENT

State of California
County of _____________________________)

          On _________________________ before me, __________ (insert name and title of the officer) personally appeared _______, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.

Signature ______________________________ 

Jurat 

A jurat is a certification added to an affidavit or deposition stating when and before what authority the affidavit was made. Black's Law Dictionary (8th ed. 2004).

The jurat certifies that the signer personally appeared before the notary when they signed the document. Govt C § 8202. That is, the signer was physically present when they signed it. Also, the notary is required to administer an oath or affirmation to the signer which requires that the signer attest to the document's truthfulness. Govt C § 8202.

An example of where a jurat is used is when there is the death of a trustee. Whereby an "Affidavit of Death of Trustee" is required and such is recorded with the appropriate County Recorder's Office.

The following is how a jurat should be worded:

State of California
County of _______________

          Subscribed and sworn to (or affirmed) before me on this ____ day of _______, 20__, by ________________, proved to me on the basis of satisfactory evidence to be the person(s) who appeared before me.

Grant Deed - For a Valuable Consideraton......

To transfer real property in California, a deed must be executed by the "seller" and be given to the "buyer" for recording.

The introductory language for deeds is "FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged." This phrase encapsulates that the seller and buyer have entered into a bilateral agreement, seller conveys the realty to the buyer in exchange for the buyer's money.  

The term "consideration" has a legal meaning to it. The California Civil Code defines consideration as 

"Any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducement to the promisor, is a good consideration for a promise."

In normal language, consideration basically means something of value, e.g. money, property, etc.

An issue then presumably arises if a person receives real property as a gift. In such case, the "buyer" does not exchange any consideration for the realty. Instead, they receive something for nothing. The buyer then becomes concerned that the inclusion of the language "FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged" on the deed makes it void or voidable. However, a California case held that such language did not have to be listed on the deed. Goad v Moulton (1885) 67 C 536. So in the case of a gift deed, the above language need not be included on the deed.

While this might not seem like a major issue, I think it is emblematic of the propensity of many people to handle document drafting themselves instead of retaining an attorney. I have seen this question raised a few times. Over the years, I have received requests to provide a copy of (1) a small estate affidavit, (2) a grant deed template and (3) a Heggstad petition to various people. 

I usually cringe when I hear these requests because I tell them what purpose does the document serve if they cannot understand it. If a person gives you the keys to a stick shift car (I proudly drive one) and you can only drive automatic, what benefit does the car provide you? The same applies to a blank grant deed as a non-attorney typically has no idea what language is necessary and what each component represents. A person is free to act as their own attorney, they should just be aware of the intended (and unintended) consequences.

Online Legal Documentation Services

Using an online site is an automated process, just like bottling beer

People who are cost-conscious or short on time, often resort to self-directed websites to draft estate planning documents. The most popular website where people can create legal documents is probably Legalzoom.  

My main critique of using websites to create documents is that the client is given no legal advice when completing the process. These websites have explicit disclaimers stating that the website is offering no legal advice whatsoever. Hence, the client is left with figuring out the legalities themselves. 

In terms of estate planning, figuring out the legalities yourself is not the ideal circumstance.

One of the principal reasons why a person with a home writes a trust is to avoid probate. Probate is quite expensive and lengthy so most people try to avert it. The key step is to transfer the settlor's home to the trust. Herein lies the problem of using an online document-drafting site, it cannot personally advise you to transfer the home into the trust nor can it actually effect transferring the home into the trust, i.e. a trust transfer deed. Both of these would constitute rendering legal advice, which it is prohibited from doing. Ultimately, the client has a trust but not funded with the home. When the client passes away, the home will need to be transferred through probate or via a Heggstad petition if certain facts are present. The upshot is that the client's goal of having a fluid transfer of assets from themselves to their beneficiaries has not been achieved. In terms of real-world application, the following example has occurred to a couple of client I have had over the years.

My non-attorney friends occasionally ask me if I am threatened by Legalzoom and other online document drafting sites, that is it is a competitor of mine. I tell them that these sites are actually beneficial to attorneys, albeit in a perverse way. Usually clients that use these sites botch the estate planning process because they are not given competent legal advice. When they come to me, I have to rectify the shortcomings so that the person's original intentions are met. Whereas, if they had just come to me in the first place, they start anew so there is less work involved that dictates a lower fee.

On a side note, Legalzoom does recognize my work. An article I wrote about modifying irrevocable trusts is cited in a Legalzoom article on the topic. While I appreciate the recognition, I am not about to give a ringing endorsement of Legalzoom because it mentioned an article I wrote.

Locating a Trust

A common question I see asked by people is,  "where can I find a copy of a living trust?" For example, a person heard that a relative died recently and remembered that he or she, the decedent in legal terminology, might have written a trust a few years ago but is not totally sure.

Many people erroneously believe that a government agency or superior court stores copies of living trusts. The simple answer is no. There is no government agency or superior court that stores copies of living trusts. Living trusts, unlike wills, are not required to be lodged with a government agency or superior court. See Prob C § 8200.

A logical follow-up question is, "where then can I find for a copy of a living trust?"

The easiest method is to rummage through the decedent's belongings. Most people keep a copy of the trust at home in a secure place, unless they have a safe deposit box. Although for a safe deposit box, access would likely be an issue because of bank privacy considerations.

A creative way for determining the existence of a living trust is to check the real property records pertaining to the decedent. If the decedent did in fact write a trust and owned real property, he or she should have transferred the property into the trust via a deed. If that is the case, the deed should show the name of the trust, the trustee and the date it was signed. Furthermore, it is common for attorneys to write the trust transfer deed for clients, also known as a grant or quit-claim deed, so the attorney's name might be listed on the deed under "Recording Requested By" in the upper left-hand corner. Many attorneys are also notaries, so it would be prudent to check the notary's name on the deed as well.  The State Bar of California's website has an online search where you can look up the name of every practicing attorney in California. Yes, every single one of them and yes I am on there. Consequently, some attorneys keep copies of trusts they have written in the past.

However, if the decedent did not own real property, it is very challenging to know if a person wrote a living trust because public records will not reveal anything. In that case, you are looking for the proverbial needle in a haystack.

Tenants in Common

Contractor's special real estate

When people purchase real estate jointly, they may hold title in a number of different ways. For example, they can hold title as (1) tenants in common, (2) joint tenants, (3) community property or (4) community property with right of survivorship. For (2), (3) and (4), it is not necessary to specify the ownership interest of each owner because it will be equal. 

Joint tenancy requires that ownership be equally allocated between the owners. CC § 683. For instance, if there are 4 owners, each owns 25% or if they are 8 owners, each owns 12.5%. Similarly, community property and community property with right of survivorship require equal ownership by each partner. Fam C § 2550. Hence, it would be redundant to list the ownership interests.

As for tenants in common, if there is no specification as to the ownership breakdown, a presumption arises that each owns an equal share. Caito v United Cal. Bank (1978) 20 C3d 694. For example, if A and B took title as tenants in common and the deed just said "A and B as tenants in common", the presumption would arise that A owns 50% and B owns 50% of the realty.   

The problem is that outside evidence can be used to prove, in case the percentages are not spelled out on the deed, that the tenancy in common does not have equal interests. Anderson v Broadwell (1931) 119 CA 150. Therefore, even if the deed did not list ownership interests, a separate document can be used to rebut the presumption of equal ownership. In light of this, it is best to just state that the interests are equal or just spell out the number, e.g. 50/50 or 25/25/25/25. 

California Notary

A notary is an integral part of the estate planning process. The following 5 questions focus on this issue.

1. What does a notary do?

A notary attests the authenticity of a signature. In regular English, the notary confirms that the person signing the document is who they claim to be by requiring proof of identity.

For example, if John Baker sells his home, he needs to execute a deed. Since the deed requires a notarized signature, John will need to submit proof to the notary that he is John Baker when he signs the deed.

2. What does a notary not do?

Essentially, anything other than attesting the authenticity of a signature.

A notary does not need to be a licensed attorney to become a notary. Unfortunately, many people believe that a notary is automatically an attorney or can give legal advice regardless. The reason being is that in some countries a notary must be an attorney. For example, a notary in Mexico must also be an attorney. The result has been that numerous individuals have been swindled by unscrupulous California notaries who provided legal advice. This can often happen in the immigration field because the clients are unfamiliar with California law and unwittingly heed the advice of the notary. This is most certainly criminal as one cannot practice law without a license. Yes it is a crime to practice law without a license. The law is rather clear on this "no person shall practice law in California unless the person is an active member of the State Bar. Bus & P C § 6125. Moreover, it is likely erroneous given the lack of formal legal training by the notary.

However, many attorneys double as notaries to service their clients more efficiently. In case you are wondering, I am not a notary. I have a colleague who is a notary that handles it for me.  

3. What does a notary need as proof of identity of the signatory?

There are various ways for a notary to verify a signatory's identity. The most common method for this is proof of a driver's license.

4. Why does a notary need to be involved in the estate planning process?

A notary needs to be involved for execution requirements. Various documents require that the person signing the document have their signature be notarized. For example, since a deed must be recorded to give notice to third-parties, a notarized signature is basically required. CC §§1214;1217;1189;1181. Furthermore, a power of attorney and advance health care directive can be executed via a notary. Prob C §§ 4121; 4673-4675. Alternatively, these two documents can also be attested by 2 witnesses. Prob C §§ 4121; 4673-4675.

Of particular relevance is the fact that a revocable trust does not require a notarized signature. Many people assume that a trust must be notarized. This is simply not true. There is no California law that mandates that a trust be notarized. The reason for the notarization is out of custom and because since there are no witness requirements, a notarized signature is proof to third-parties that the settlor, the legal term for a person who creates a trust, actually signed the document. Otherwise, a nefarious character could draft a fabricated trust in order to steal the identity of another person. Thus, the notarized signature reduces the potential for fraud.

5. How much can a notary charge per signature in California?

A notary may charge up to $10 per signature. Govt C § 8211(a). Before you tell me that I'm wrong because you were charged more than that, keep in mind that a notary may also charge the cost of travel.

Real Property in California

650 Rosewood Court Los Altos, CA 94024

When couples purchase real property they have a number of methods in which they can hold title to such. The following are some of the more common methods for couples to own real estate collectively. Although couples can own real property through a business entity, such as a corporation or LLC, I omitted that section because the vast majority of couples do not purchase real property through a business entity. 
  

	Tenants in Common	Joint Tenancy	Community Property	Community Property with Right of Survivorship
Ownership Restriction	No	No	Must be spouses or domestic partners	Must be spouses or domestic partners
How title may be held (this is how the grantee's name might  be stated on the deed)	John Doe and Jane Doe, as tenants in common	John Doe and Jane, husband and wife, as joint tenants	John Doe and Jane Doe, husband and wife, as their community property	John Doe and Jane Doe, husband and wife, as their community property with right of survivorship
May ownership interests be different	Yes	No, must be  50/50	No, must be 50/50	No, must be 50/50
How title is transferred on death	Probate	Affidavit of death of a joint tenant	Spousal probate petition	Same as joint tenancy
Notable advantage	Interests need not be equal	Avoids probate	Entire property subject to stepped-up basis	Avoids probate
Notable disadvantage	Subject to probate	Lack of testamentary control	Spousal probate petition	Lack of testamentary control

Change of ownership - Prop 13

The process for transferring legal title to real property in California is actually quite simple. 

It merely requires the filing of two documents, a deed and a preliminary change in ownership (“PCOR”), with the appropriate County Recorder’s and County Assessor’s Office. 

The deed needs to be recorded in the county in which the property sits. For instance, if the property is in Davis, CA the deed would need to be filed with the Yolo County Recorder’s Office, or if the property was located in Scotts Valley, CA the deed would need to be filed with the Santa Cruz County Recorder’s Office. My personal experience with the Santa Cruz County Recorder’s Office has been quite pleasant. The clerks there have been very helpful. As for the PCOR, this is filed simultaneously with the deed. The County Recorder will forward the PCOR to the County Assessor.

The following information must be included on the deed:

1. The name of the grantor (the seller essentially). CC §1096,
2. The name of grantee (the buyer essentially). CC § 685.
3. A legal description of the property.
4. The signature of the grantor. CC § 1091.
5. The name of the person requesting recordation. Govt C §27361.6.
6. The name and address to which further tax statements may be mailed. Govt C §27321.5.
7. The amount of the documentary transfer tax due. Rev & T C §11932.

Thought not statutorily required, the assessor’s parcel number should be included on the deed nonetheless. In light of these requirements, deeds are typically only a few pages long.

The other part of the equation is the completion of a preliminary change in ownership (“PCOR”). 

California law says that a PCOR must be filed whenever there is a change in ownership of real property. Rev & T C §480(a). The reason for the PCOR is to inform the county assessor whether a change of ownership has occurred that will trigger property tax reassessment (See Prop 13). The PCOR is a 2 page form that asks questions pertaining to the identity of the new owners, the location of the property, the sale cost, etc. Each county may have its own PCOR form but the general format is modeled after a template drafted by the State Board of Equalization.

A key distinction between these two documents is the fact that a deed is subject to public inspection whereas the PCOR is not. For example, if I wanted to know who owned the home across the street from me, I could ask my real estate agent to pull the title for that home. However, I could not ask them to obtain the filed PCOR for that property.

For illustrative purposes, assume that Samantha Seller sold her Malibu dream home to Brooke Buyer for $100, 000. In order for Samantha to transfer ownership of the home to Brooke she would need to execute a deed, and in turn, Brooke would need to file a PCOR with the Los Angeles County Recorder’s Office so as to inform them that the house should be re-assessed for property tax purposes.