California Real Property Transfer into and out of Trusts Tip Sheet by Mark W. Bidwell

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New Tip Sheet on how to fund living trusts and transfer post death out of trust, real property located in California. Tip sheet provided by Mark W. Bidwell, a licensed California Attorney

How to fund living trusts and transfer post death out of trust, real property located in California. Provided by Mark W. Bidwell, a licensed California Attorney

A deed is a document signed by the owner of the real property that transfers ownership.

Trusts must be funded with real property to avoid probate.

This is one of a set of tip sheets and is on how to transfer real property into a living trust and the post-death transfer of real property out of a trust. Real property in California funded into a trust avoids probate.

Funding is by deed from the owner to the owner as trustee of his or her trust. Ownership change into a living trust does not incur transfer tax, property tax increase or transfer tax. On death of the trust owner the successor trustee transfers real property by deed to heirs of the decedent.

Trusts remain unfunded because real property was omitted when the trust was created, real property was acquired after trust’s creation or real property was transferred out of trust by a lender for underwriting purposes. A deed filed with the county recorder remedies each of these problems.

A deed is a document signed by the owner of the real property that transfers ownership. Deeds are either “warranty deed” “grant deed” or “quit claim deed.” Grant deeds and warranty deeds by law have the owner’s promises he or she has not conveyed the property to someone else and the real property does not have any undisclosed taxes, loans, assessments or liens. A quit claim deed conveys ownership “as is,” including any debt, disclosed or not.

The deed must be part of the public database maintained by each county in California. Deeds are “recorded” in the county where the real property is located. Recording puts the world on notice who owns the real property and is the final word.

Transfers in or out of a trust are excluded from increase in property tax base. A form called “Preliminary Change of Ownership Report” (PCOR) is filed with the deed to obtain the exclusion.

There is no transfer tax on trust transfer deeds. California Revenue and Taxation Code exempts trust transfer deeds from transfer tax. To obtain this exemption the tax code must be stated on the deed.

On death of the owner the successor trustee transfers real property to beneficiaries identified in the trust. The successor trustee files an “Affidavit of Death of Trustee” with the county recorder. The affidavit allows the successor trustee to sell the real property or transfer ownership as directed in the trust. Transfer of ownership out of the trust is by deed.

Upon receipt and control of the real property the new owner should take steps to reduce capital gains tax on any sale in the future. Good practice is to obtain an appraisal on the property as of date of death. The basis to the new owner is the fair market value of the real property known as a step-up in basis. Capital gains tax is on the difference between sale price and the date of death market value. An appraisal is needed for any IRS audit.

Any real property distribution to a child of a deceased parent qualifies for Proposition 13 parent-to-child property tax exclusion. The parent’s property tax base for assessment is transferred to the child. But to receive the reduction in property tax the claim for reassessment exclusion must be filed within 3 years of transfer. Good practices suggest not putting this off and submitting claim once the deed has been recorded.

For more information on how to fund living trusts and post death transfers out of trust contact Mark W. Bidwell, attorney at law. Office is located at 4952 Warner Avenue, Suite 235, Huntington Beach, California 92649. Phone is 714-846-2888. Email is Mark(at)deedandrecord(dot)com. Marketing for trust transfer services is primarily through website http://www.deedandrecord.com.

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Mark Bidwell

Mark W.Bidwell
Kim Nishida
since: 10/2012
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