Trust Issues: Real Estate IS Different

Many Californians have their assets protected with a Revocable Living Trust. It's a great way to preserve and assign assets, especially for keeping family wealth in the family by legally avoiding probate. When it comes to selling real estate owned by a Trust and depending on other factors, unexpected issues may be lurking... and could put a wrench in the transaction. This is especially important in today's market where competition for a limited number of qualified buyers is high. It's wise to address potential issues BEFORE they threaten to unravel a deal in escrow.

Disclosure: I'm talking Real Estate here, as an agent for Sellers and Buyers. I AM NOT a lawyer.

I have tremendous respect for those working in the legal profession, and especially those working on the behalf of consumers, protecting and upholding our rights of property ownership in this country. Here I simply want to talk about a recent real estate experience I had with Trust Seller clients. They were confident that the Durable Power of Attorney for All Assets, prepared by their family's legal firm, was sufficient for their objective: to sell real property held in title by their family (living) trust.

The clients are sophisticated people, their attorney, experienced, and yet when it came to selling a property owned by the Family Trust.... the title insurer required MORE.

Thus, Real Estate is Different. Read on.

The Family Trust Sellers believed they were prepared to sell the property because

• Successor Trustee was also the surviving spouse of the living Trust AND
• Successor Trustee assigned Durable Power of Attorney for All (Trust) Assets to the next Successor Trustee 

The Seller parties to the Trust expected that all was in order, having been prepared by their attorneys well in advance of listing the property for sale. The Survivor (spouse) of the Trust moved away after assigning the next-in-line Trustee identified in the Trust to manage, reinvest or liquidate any assets held in the Trust for the benefit of the Trust. The Durable P.O.A. was for "all assets" and indeed, a variety of assets were identified; investment accounts, bank accounts, and real estate owned by the Trust. It was expected that the real property, in this case the Survivor Trustee's primary residence, was included.

And yet, all this diligent preparation was not enough for the Title Company to insure title because

Real Estate is Different!

A contract of sale was made and escrow opened. Title Company required a Substitution of Successor Trustee for the sale of this particular property in order to insure title. Really?

Shouldn't that all-encompassing Durable Power of Attorney for All Assets have covered this?

Well, according to the Title Company - the required insurer of ownership of real property (for real estate sales in California)-- uh, No. Durable Power of Attorney for All Assets.... not enough!

The result for the Sellers in this case basically amounted to a "do-over" with considerable inconvenience and frustration to them. They'd anticipated that the Durable Power of Attorney would cover the transfer of title of real estate to the next-in-line Successor Trustee, alleviating that burden from the primary Successor (in this case, the surviving spouse of the Trust, who had already relocated) from further responsibility. Instead, additional time, travel, and notary costs were incurred in order to meet the requirements of the Title insurer to complete the sale and ultimately transfer title of the property to the new owners.

Not every sale of real property held in title of a trust will experience the scenario just described. I bring this to the attention of those who may have assignment as Successor Trustee/s for a Living Trust and for their consideration. I advise consultation with an attorney for legal advice in any matter. Should questions remain regarding real property sale process and requirements for successful sale of real estate owned in a living or family trust in California, consult an experienced, professional Realtor®.

You can do that without leaving this page.....I invite questions and comments and am here to assist. You can also call me: 310-433-3349.


I am a fan of the California Living Trust. I've represented too many probate sales and witnessed the results (i.e., in a probate sale, most often the greater amount of proceeds are paid to the State, and heirs divvy up the remainder...) to have any other opinion. For the majority of Californians that own their homes, the real estate that they own, most commonly their home, is their greatest financial asset. I am continually amazed that after four decades of the California Living Trust provision, there are still California homeowners (and/or their heirs) that have not  bucked up the nominal legal fee to set up a Living Trust and avoid state probate.

If you don't have a Living Trust and need more information, contact a good trust attorney for details. If you don't know a trust attorney, contact me and I'll be happy to refer you to a reputable attorney with experience.

If you do have a Living Trust, or are involved as a successor trustee to a living trust, you should know that Real Estate is Different from other assets when the Trust goes to sell that real estate in California.

Underwater?

This lone, abandoned house-boat in an otherwise floating neighborhood of luxury yachts, elegant sailboats and university rowing teams, caught my imagination today. Though it sinks slowly alone in Marina del Rey, for me it is a most obvious, and poignant, metaphor for the predicament that many - very many - homeowners are experiencing today: carrying a mortgage balance that is more than their property is worth. Sometimes also referred to as "being upside-down", I feel that the term "underwater" is more accurate.

As a nation I don't need to tell you, we're three years into a huge financial crisis that has most notably affected employment and real estate for the worse. For those who've suffered the additional financial fall-outs of health crises, divorce, elder care and/or death of their partners, and more, the suffering has been magnified, often forcing liquidation of assets, or drawing on real estate equity.

Thus we have two type of homeowners with mortgage obligations greater than their property value.

"Up-side down" suggests that nothing less than a polar reversal, a total revolution, would set the situation "right-side up" once more. This is accurate for some homeowners. They cannot make their payments and they cannot sell to repay the full-debt owed their lenders. A few have successfully modified the terms of their home-loans, but many more have tried and failed, or more sadly, not tried at all and let their mortgages lapse into default, a.k.a. Foreclosure. If they haven't already walked away, the Short-Sale is their best option. Yes, it will hit their credit rating.... but not nearly as hard as bank repossession.

But "Underwater" describes a growing number of homeowners. "Stuck" might be an apt term for some of them, who would sell and move if they only could. These people meet their monthly loan obligations, but any equity they may once have had has been wiped out. They owe more than their home is worth. They are stuck. For those in this situation, let me extend the maritime metaphor further and offer this message of hope: tides change. In real estate, not nearly as often as the sea, so here are some tips for coping:

• Rennovate. Now's the time to do it. So this was the starter home? Make it your dream home now, so it will be someone else's passion when(if) you decide to sell later.
• Remodel. Also a good time. You'll be surprised how quickly you get a call-back from that contractor that didn't acknowledge you 4 years ago.
• Rent. You want to move up and elsewhere? Consider renting. You rent, and you rent your current home to someone else. Under current regulations, you can still take the tax advantages of selling your primary residence if you lived in it 2 out of the most recent 5 years. Check with your tax professional.

I would love to hear any other ideas on this topic. And, as ever, I welcome readers' questions!