Real Estate Transactions Involving Trust Property

A living trust (also known as an inter vivos trust) is a relationship created during the lifetime of a grantor when she takes ownership of assets in trust and creates specific instructions regarding the distribution of those assets to beneficiaries upon her death, or as otherwise specified. The grantor and the trustee are often the same person, and the successor trustee is the person who will manage the trust assets following the death of the grantor. Unlike a will, the property held in trust is usually not subject to the probate process.
 
Reduced Disclosure Requirements

A living trust is not a legal entity. It is not capable of performing legal action on its own. Legal title to property that is an asset of the trust is held by the trustee or successor trustee, and the sale and purchase contract and property deeds should be executed by the trustee. When the property is ready to be placed on the market, the trustee will execute a trust listing agreement with a real estate broker for the sale of the property. 
 
The California Association of Realtors (CAR) provides a Trust Advisory form (TA) used by the broker representing the seller/trustee in a trust sale. It advises both the buyer and seller that trust sales are exempt from some disclosure obligations that are normally required of sellers. The seller/trustee may be exempt from the Transfer Disclosure Statement, Natural Hazard Disclosure Statement, Mello-Roos district lien disclosure, Improvement Bond Act of 1915 notice, smoke alarm obligations, Supplemental Property Taxes notice and Private Transfer Tax notice. However, these exemptions only apply in situations where the trustee was not an occupant in possession of the property within the preceding year.
 
The form further provides that the seller is not exempt from common law and statutory duties concerning fraud and deceit and known material facts affecting the value and desirability of the property. If the Trustee or her real estate agent knows of certain defects with the house, they are never exempt from the obligation to disclose what they know.
 
Multiple Trustee Consideration

One of the issues involving buying and selling real property held in a living trusts arises when there are multiple trustees/successor trustees. A non‐signing trustee might later contend that he was unaware or did not agree to the transaction and possibly initiate a lawsuit to overturn the transaction. The California Probate Code Section 18100 protects and exempts any third party who deals with or assists a trustee in a transaction from a duty to investigate the trustee’s capacity, as long as the third party “acts in good faith and for a valuable consideration and without actual knowledge that the trustee is exceeding the trustee’s powers or improperly exercising them.”

However, a prudent real estate broker may still request a copy of the trust agreement or certificate of the trust to confirm the trustee’s power and capacity. When dealing with trust properties, brokers should obtain the copy of the trust instrument and insure that the property was deeded in trust. Brokers then should have all co-trustees execute the transaction documents.