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Easy: transferring real estate into a living trust

A client recently asked me about transferring a piece of property he had bought into his living trust. “This is actually easier than you might think,” I told him. “Just give me the address, and I’ll get everything rolling.”

Whether it’s your principal home or a secondary property, putting real estate into a trust or even purchasing it in the name of the trust from the get-go is always a good idea. Why? As I have mentioned before, it keeps the asset out of probate, a time consuming and costly process that you will not want to put your loved ones through. (For more on this read my post The low down on probate and how to avoid it.)

Are there any downsides to such a property transfer? I advise you to contact an attorney regarding your specific situation, but generally the answer is no. Because living trusts are revocable you retain ownership of and control over the property. This means that the transfer will usually not require your property to be reassessed (with such a reevaluation the tax burden usually increases) and you will not forfeit any tax benefits. You can still deduct your mortgage interest, and you can still claim the capital gains exclusion if you sell your primary home at least two years after you bought it. One difficulty that you could eventually run into is the process of refinancing. Banks are sometimes reluctant to make loans on real estate that is held in a trust. But there’s an easy fix: You temporarily transfer the property from the trust to yourself to secure the mortgage and put it back into the trust when you’re done.

Which steps are needed to make a transfer happen? First, your attorney will prepare a deed from you as an individual to you as the trustee of your trust and make the transfer public by sending it to the County Recorder’s Office. If necessary, your attorney will contact your title insurance company. Most policies issued by the American Land Title Association permit the transfer of real property to living trusts without requiring an endorsement, i.e. without the trustee being added to the policy. However, many policies issued by the California Land Title Association do not. A good estate planning attorney will review your title insurance, make the necessary determinations and take the necessary actions. Sound easy? It is. But things can go wrong, and mistakes are often costly, so you will need professional legal advice.

by Kevin J. Moore