Potential Problems
with Real Estate Title
by Tina Triano, Esq.

In the years that I have been preparing estate plans, I have had the same problem arise several times. I recently re-encountered this problem again just a few weeks ago. A client, the sole beneficiary of a trust, came to discuss the sale of a house. His parents, both deceased, owned a house that he was unable to sell because the property was not titled in their trust. It was still owned by his parents. His parents had refinanced a few years back and no one had bothered to put the property back into the trust. As a result, he is going to need the probate court to confirm the house is an asset of the trust before a title company will insure a sale to a buyer. Wasn’t the point of creating a trust to avoid probate?
The problem described occurred when my client’s parents refinanced the house and the escrow/lender removed the house from the trust. When the refinance was complete, the house was never moved back into the trust. A living trust is intended to avoid probate, but it cannot do its job if the assets are not in the trust. The deed to real estate (whether recorded or not) in California will prevail regardless of your instructions in your trust.
When you create a living trust, it is customary to re-title your real estate in the name of the trust. For example, if you own a house as a joint tenant (immediate right of survivorship) with someone else, such as your spouse or domestic partner, and you later create a living trust, you normally re-title the real estate into your trust’s name with you as trustee. If you are married, your house will usually be titled in your trust’s name with you and your spouse as trustees. If you do not re-title your house into the name of your trust, the house will pass based on the deed’s title, not your trust’s instructions. This might be okay if only one of you passed away, but if you both pass away, the matter will most likely have to be submitted to probate. As with my client, this problem only arises after you have passed away.
This is a prolific problem in the lending industry – the removal of your real estate from your living trust at the time you refinance without your understanding of how it affects your trust. Although you sign a deed removing the property from your trust, with all the other documents you are signing, it is easy for this transfer to be overlooked. I cannot tell you how many clients I’ve spoke to over the years who have said they thought the house was put back into the trust after the refinance was done. I know of no title company who will prepare a deed to put a house back into trust.
The moral of this story? If you have a living trust and you have refinanced any time after creating your trust, make sure your real estate was put back into your trust.

~Tina Triano is a California Attorney & Real Estate Broker with over 20 years of real estate contract/loan experience and over 15 years of estate planning including the implementation of capital gains tax avoidance methods. Tina is regularly a guest speaker in the real estate community. You can reach her at 408 425-7953 (appointment line) or email her at ahba@garlic.com.