When a parent dies who has had the forethought to establish a trust, the probate process can be avoided, which can be time-consuming and costly.
Now, let’s assume that the parent/trustee has real property in California and has named a successor trustee whose job it is to ensure that the property is passed on to the parent’s heirs. How is this done?
Keep in mind that this is meant as a general overview and should not be a substitution for legal advice regarding your specific situation.
After the trustee has fulfilled all of his or her duties (sending the Trustee’s Notice, Publishing Notice to Creditor’s, etc.), the following documents must be submitted to the recorder’s office of the county the property is located in:
An Affidavit of Death of Trustee
The successor trustee must affirm that the parent / trustee has died and that the successor trustee named in the parent’s trust is the new trustee. The affidavit must also state that the deceased parent / trustee owned the real property. An original certificate of death must be submitted in support of the affidavit.
A New Deed
When the affidavit is filed and recorded with the county recorder, the successor trustee can sell the property or transfer ownership to the decedent’s children. If the property is going to be kept by the family, a new deed transferring ownership to the beneficiaries named in the trust is necessary. This is where you need to be especially careful in California, however. Prop 19, effective as of February 16th, 2021 significantly decreased the amount of property that can be inherited without incurring a reassessment for property tax purposes. Beneficiaries also get the stellar tax incentive of the “step up in basis” if they choose to sell the property rather than holding on to it.
If the beneficiaries decide to keep the property, the transfer can be done using a “Grant Deed.” The new deed must also be notarized and recorded with the county. In many of our trust administrations, one beneficiary chooses to “buy out” the other beneficiaries and maintain the property. When this is done, an Appraisal is necessary to determine the current value of the property. Generally trustees choose to work with an attorney to structure a buy out that is agreeable to all parties.
A Reassessment Exclusion Form
Fortunately, in California there is a property tax exemption when the transfer of real property is from parent to child. Unfortunately for beneficiaries, that property tax exemption has recently gotten a lot smaller. And, it only applies to a parent’s primary residence that will be used as the child’s primary residence. One also has to be very careful with how the forms are drafted and submitted to the Assessor in order to receive the exclusion. Nevertheless, to take advantage of the property tax exclusion, a Claim for Reassessment Exclusion Form must be submitted to the County Assessor.
Transferring ownership of real property (a home, building, or land) out of a trust is part of the formal legal process of “administering a trust.” If done incorrectly, trustees can be held legally liable for their actions or inactions, and beneficiaries can be stuck with unnecessary fees and tax bills.
To schedule a consult regarding Trust Administration in the SF Bay Area, contact my SF East Bay Trust and Estate Law Firm at 925-322-1795.