Living Trusts and California Real Estate: What Homeowners Need to Know

A living trust can be an important part of estate planning, especially when real estate is involved.

But simply having a trust document doesn't necessarily mean everything has been handled correctly.

One of the biggest issues we see is surprisingly simple:

The trust exists—but the real estate was never actually transferred into it.

Other questions come up when a trustee becomes incapacitated, a successor trustee takes over, or beneficiaries want to sell or transfer the property.

So let's look at some of the most common questions involving living trusts and California real estate.

Why Put Real Estate in a Living Trust?

One reason people establish a living trust is to provide instructions for what happens to their assets after death.

Instead of leaving family members wondering what should happen with a property, the trust can establish who is responsible for managing the assets and how they should ultimately be distributed.

A properly structured estate plan can also help avoid probate for assets that are appropriately held in the trust.

But there's an important distinction:

Creating a trust and putting your real estate into the trust are not necessarily the same thing.

How Do You Put a House Into a Trust?

Generally, putting real estate into a living trust involves transferring title to the appropriate trustee or trustees of the trust.

That typically requires a properly prepared and recorded deed.

This step is sometimes referred to as funding the trust.

And it matters.

You could have a beautifully prepared trust sitting in a binder somewhere, but if the real estate was never properly transferred into the trust, problems may surface later.

That's why property owners should confirm that their estate-planning documents and the actual title to their real estate work together.

Can a Will Be Used Instead of a Living Trust?

A will can provide instructions about how someone wants assets distributed after death.

But a will and a living trust operate differently.

One significant distinction is probate.

Assets passing through a will may still be subject to the probate process, while assets properly held in a living trust may be able to pass according to the trust without going through probate.

That doesn't mean everyone automatically needs a trust.

It means homeowners should understand the difference and discuss their individual circumstances with a qualified estate-planning attorney.

What Happens if the Trustee Becomes Incapacitated?

This is another common situation.

Suppose Mom and Dad created a living trust and hold their house in that trust.

Years later, both become incapacitated and can no longer make financial decisions.

Can one of their children simply use a power of attorney to sell the house?

Don't assume so.

The original newsletter made an important point: the trust itself generally contains provisions addressing what happens when a trustee becomes incapacitated.

The trust document needs to be reviewed to determine who has authority and what requirements must be satisfied.

This is exactly why trust transactions should be addressed early—not two days before a scheduled closing.

What Is a Successor Trustee?

A successor trustee is generally the person designated to step into the trustee role when circumstances specified by the trust occur, such as the death or incapacity of the original trustee.

Being successor trustee is not necessarily the same thing as personally owning all the trust property.

The trustee has responsibilities under the trust and must act according to its terms and applicable law.

That's an important distinction when real estate is being sold.

The person signing isn't necessarily signing simply because they're an heir. They're signing because they have the appropriate authority under the trust.

What if My Parents Had a Trust but Forgot to Put the House Into It?

This is one of the most important questions in the original newsletter.

Imagine your parents created a living trust.

Other assets were placed into it.

The trust says what should happen to the house.

But after they die, you discover that title to the house was never transferred into the trust.

Now what?

The original article discussed a potential court procedure commonly known as a Heggstad petition, which may be used in certain California situations to establish that property was intended to be part of a trust.

But this is a legal matter.

If you discover that real property was omitted from a deceased person's trust, talk with a qualified California attorney about the appropriate procedure for your specific circumstances.

The bigger lesson for homeowners is much simpler:

Don't wait until someone dies to discover whether the house was actually put into the trust.

How Can I Tell Whether My House Is in My Trust?

Don't assume.

Verify it.

Look at how title to the property is currently vested.

If you're uncertain whether your real estate was properly transferred into your trust, contact the appropriate professional and have the situation reviewed.

This is especially important after:

• Creating a new trust
• Amending or restating a trust
• Buying another property
• Refinancing
• Getting married or divorced
• A spouse's death
• Moving property between entities
• Making other significant estate-planning changes

Estate plans shouldn't simply be created and forgotten.

I'm the Beneficiary. Does That Mean I Own the House?

Not necessarily in the way people commonly think about ownership.

A beneficiary and a trustee have different roles.

The trustee generally administers the trust property according to the trust's terms.

The beneficiary is the person or entity entitled to benefits from the trust according to those terms.

Someone may be both trustee and beneficiary, but that doesn't mean the trust can simply be ignored.

This distinction becomes particularly important when someone wants to sell or transfer real estate after the original trustees have died.

Can a Successor Trustee Transfer Trust Property to Themselves?

This is another situation where you should be very careful.

A successor trustee has fiduciary responsibilities and must follow the trust.

You shouldn't assume that being named successor trustee gives you unrestricted authority to transfer trust property to yourself.

The original newsletter specifically warned about a successor trustee making a self-serving transfer and emphasized that the trust and other successor-trustee requirements may need to be considered.

If you're both a beneficiary and successor trustee, get appropriate legal and tax advice before changing ownership.

Should I Take a House Out of a Trust and Put It in My Individual Name?

Again, don't make this decision simply because you can sign a deed.

There may be estate-planning, tax, property-tax, liability, financing, or other consequences.

The original newsletter specifically recommended consulting a CPA before making this type of transfer because of potential tax considerations.

A title company can help identify requirements associated with insuring and transferring title, but it isn't a substitute for personalized legal or tax advice.

Why Trust Problems Often Appear During a Real Estate Sale

Here's where this becomes particularly relevant to title and escrow.

Everything may seem fine for years.

Then the family decides to sell the property.

The title company starts examining the transaction and needs to determine:

Who currently holds title?

Is the property actually vested in the trust?

Who is the current trustee?

Did an original trustee die?

Is a trustee incapacitated?

What does the trust say about successor trustees?

Does the person attempting to sell actually have authority?

Are additional documents required?

These questions need answers before title can be properly insured and the transaction can close.

And that's why the beginning of escrow is a terrible time to discover that the family's understanding of the trust doesn't match the public record.

Review Your Trust Before You Need It

If you already have a living trust, there's a simple takeaway:

Make sure your real estate is actually titled the way your estate plan intends.

Don't wait until you're trying to sell.

Don't wait until a trustee becomes incapacitated.

And definitely don't make your family discover the problem after you've passed away.

Review your estate plan periodically with the appropriate professionals and make sure newly acquired real estate hasn't accidentally been left outside the plan.

The Bottom Line

A living trust can be an extremely useful estate-planning tool.

But the document alone isn't the whole story.

When real estate is involved, how the property is actually titled matters.

The trust, deed, trustee authority, successor-trustee provisions, and ultimate estate plan need to work together.

If you're creating or changing an estate plan, work with a qualified California estate-planning attorney and tax professional as appropriate.

And when trust-owned real estate is being sold or refinanced, get the title company involved early.

Fixing a potential problem before escrow is much easier than discovering it when everyone is waiting to close.

Have a Title or Escrow Question?

We're Bobby Tarango and Mike Arias, sales representatives with Chicago Title, and we work with real estate professionals throughout the High Desert to support their title and escrow needs.

Through ChicagoTitlePro.com and TitlesEverything.com, we share real estate information and resources designed to help real estate professionals, buyers, sellers, and property owners better understand title, escrow, ownership, and the many moving parts of a real estate transaction.

If you're dealing with real estate held in a trust, a successor-trustee transaction, or another title or escrow issue, reach out to Bobby or Mike about the title and escrow side of the transaction.

For legal, estate-planning, probate, or tax advice, consult the appropriate qualified professional.

Bobby Tarango & Mike Arias
Chicago Title
Title & Escrow Sales