How to Transfer Property into a Trust

A trust is a strategic estate planning tool that can help to ensure your wishes are upheld after your passing. They can also be used to minimize tax consequences and preserve assets for future generations. However, a trust must be properly created and fully funded in order to be valid. If assets or property are not transferred into the trust, it will not serve its intended purpose. It’s important to understand how to transfer property into a trust so the assets will be distributed to your desired beneficiaries.

What is a Trust?

A trust is a legal arrangement in which a third party (the trustee) holds and manages property on behalf of a beneficiary. The trust is created by the trustor, also referred to as the grantor. A trust can be arranged in many different ways and for a variety of purposes, depending upon the creator’s objectives and financial goals. Trusts may be revocable, which means they can be modified and amended during the lifetime of the creator. Or they can be irrevocable — meaning, the grantor relinquishes the ability to make any changes.

How is a Trust Created?

There are two main steps to setting up a trust. First, the trust instrument must be drafted. This is the legal document that designates the grantor, trustee, and beneficiaries. It also specifies how you wish the trust assets to be managed — as well as to whom and under what conditions you wish them to be distributed. The written instrument may also bestow certain powers and responsibilities to the trustee.

The second step in creating a trust is funding it. A trust instrument by itself is void if property is not transferred into the trust. In other words, a trust that has no assets placed in it is similar to a new bank account that does not contain any funds.

A trust can be funded with the following types of property and assets:

• Real estate
• Financial accounts
• Stock certificates
• Annuity certificates
• Life insurance
• Business interests
• Collectible vehicles
• Personal property
• Jewelry and art

A trust can be set up in as little as several days to a few weeks, depending upon the complexity of the assets. Although a trust instrument may be drafted expeditiously, the process should not be rushed. It’s crucial to take the time to determine your objectives for the trust and discuss your goals with an experienced trust attorney.

How to Transfer Property into a Trust

The way in which a trust is funded — and how assets are transferred into the trust — will depend upon the type of property the grantor intends to distribute. For instance, personal property is relatively simple to transfer into a trust. It merely requires a signed statement that lists the assets being transferred. If the personal property is titled in the grantor’s name, such as a boat or a motor vehicle, it must be transferred with the correct type of deed.

Real estate can be transferred into a trust by a deed that transfers title from the grantor to the name of the trust. Under California law, a Preliminary Change of Ownership Report must be filed simultaneously with the deed at the county recorder’s office in the county where the real property is situated. This lets the county assessor’s office know about the transfer so that the value of the property can be reassessed, if applicable. Typically, real property transferred to a living trust will not be reassessed.

It should be noted that a trust deed in California is not the same as a transfer of real estate. Instead, it serves as a record of an encumbrance or mortgage on real property. Specifically, it is used to create a financial institution’s security interest in a particular property in the event it is lending money to the property owner.

How is Property Transferred Out of a Trust?

After the grantor has placed their property into the trust, it will remain there until the condition specified in the trust document occurs. Significantly, an irrevocable trust functions in a very different way from a revocable trust. While a grantor typically names themselves as the trustee of a revocable trust, assets can be transferred in and out as they wish. But with an irrevocable trust, the grantor loses all control once the property has been transferred and the trust is fully funded.

Trusts can help to avoid going through the probate process in California. Rather, the trustee will distribute the property and administer an irrevocable trust according to the terms outlined in the instrument. Distribution can be fairly simple if the trust instrument identifies the precise amount that should be disbursed to each beneficiary — percentage distributions can be more complex as they require the trustee to first establish the fair market value. A grant deed is used to transfer real estate out of the trust to the designated beneficiaries.

Contact an Experienced California Trusts, Estates, and Probate Attorney

If you are considering setting up a revocable or irrevocable trust, it’s vital to have the assistance of a skillful trust attorney. At White & Bright, LLP, we offer solid advice and experienced representation to clients in California who wish to create various types of trusts to ensure their financial objectives are met. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.