Trusts and Property – Is There Wiggle Room?

When teaching how to buy off market properties out of the probate process, we also touch on trusts. The fact is that ALL assets that are owned by an individual must be titled in the name of the trust. It is not unusual, however, for people to be forgetful or neglectful in actually placing their assets into the trust.

Here is an example of how easily property can be left in an individual’s name and not titled in the name of the trust. The most common example is when the property is refinanced. A mortgage lender may not want the borrower to be a trust, so the buyer will put the property back into their name to refinance intending to deed the property back to the trust later. Then they forget to do so.

This lack of follow through can cause problems later on. When the creator of the trust passes on and it becomes the successor trustee’s responsibility to manage, dispose of the assets and distribute the proceeds, there can be an issue if there is property outside of the trust. The successor trustee typically has a probate to also deal with now.

A recent ruling in California contains some good news for those (or really the PR and heirs of those) who forget to place assets in or back in their trusts.

Facts of the case:

Larry Gene Mabee died on December 16, 2012 – he had a Trust and a pour over will. Mabee owned two parcels of land that were held by Mabee as an individual. The trust instrument did not describe the two parcels by reference to any specific identifying information unique to those properties. Although not specifically identifying the two parcels, the trust instrument GENERALLY STATES that Mabee ASSIGNS the ownership of all his real property to the Trust effective immediately.

When Mabee passed away his Successor Trustee, Daniel Ukkestad, “filed a petition for an order confirming that the two parcels are part of the Trust’s assets, premised on… Language from the Trust Instrument.”

The Appellate Court noted that the Supreme Court recently endorsed a “flexible, pragmatic view under which uncertain written contractual terms comply (with the requirement of certainty of meaning) as long as they can be made certain by reference to extrinsic evidence…”

So, in the Mabee case the Appellate Court said, “The trust instrument contains language that identifies which of Mabee’s real property is being conveyed to the trust. Specifically, in the trust instrument Mabee refers to ALL of his real and personal property including … real property… wherever situated.” From there, they went on to observe, “It is a simple matter of referring to publicly available records to determine Mabee’s real estate holdings.”

This is a very positive step in helping trusts stay out of probates. Please don’t think this ruling can be relied upon and not bother to deed the real estate into the trust.

Best practice is still making sure all property is titled in the name of the trust. But at least now, if we don’t do everything correctly there is a chance that the situation will turn out OK.

Learn to Trade Now