Living Trusts and Residential Real Estate, Concerns After Wildfires
When to Notify Homeowner’s Insurance Carrier and Lender, Property Tax Implications
If you have established a living trust and own real estate, you were likely advised to transfer the real estate to your trust. A living trust may also be known as a “revocable trust,” “inter vivos trust,” or “family trust.” Many homeowners place their residence in a living trust by way of a deed, to help avoid probate at the time of death.
Homeowners Insurance
The recent wildfires in California have raised concerns about the insurability of residents’ homes and possible denials of claims. A living trust does not prevent you from obtaining or maintaining homeowner’s insurance. However, it is advisable to contact your insurance agent to request that your living trust is listed as an “additional’ insured” party on your policy. Be prepared to provide them with a copy of your living trust, or your trust certification, to simplify the process.
Lender Notification and Approval
If you have a mortgage for your real estate, the loan agreement may contain a “due-on sale” clause. It is a clause that permits the lender to demand immediate payment of the full loan balance if an unauthorized transfer of the mortgaged real estate occurs. This has raised concern that a transfer of real estate to the borrower’s living trust will trigger the due-on sale clause. Fortunately, the Garn-St. Germain Act permits the transfer of residential real estate to trust, without lender notification or approval, when the following elements are met:
- residential real property;
- less than five dwelling units;
- transfer into an inter vivos trust;
- the borrower is a beneficiary of the trust; and
- does not relate to a transfer of rights of occupancy in the property.
It is probable that a primary residence meets the above requirements, therefore the transfer of the home to a trust does not cause any issues with the lender, and notification to the lender is not required. Take note of this for properties that do not meet the above requirements, such as commercial properties, multi-dwelling units, and agricultural land.
Property Taxes
Conveyances transferring interests into or out of a Living Trust are exempt from the Documentary Transfer Tax Under California State Revenue and Taxation Code 11911.
A transfer of your real estate into your revocable trust, during your life, is not considered a change in ownership. Such transfer should not trigger a reassessment for property tax purposes.
For more information, contact Christine Chacon and Monica Rosas.
Disclaimer: BBK Legal Alerts are not intended as legal advice. Additional facts, facts specific to your situation, or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.
