Must transfers into a trust's principal be specifically conveyed?

A recent decision by a California Court of Appeals may impact how individuals fund their revocable trusts.

The case involved a settlor who stated in his revocable trust instrument that he wanted to fund it with all of his real and personal property. The man was also the named trustee. However, the man had not changed the title of two real estate parcels to the trust. As a result, there was uncertainty whether the funding was effective. 

The successor trustee petitioned the probate court for confirmation that the two parcels were in the trust. However, one creditor initially opposed the request, since the transfer would effectively remove the parcels from the deceased’s probate estate. 

As readers may know, property in a trust generally must be specifically transferred. That usually means separate deeds of conveyance when real estate is involved. Assets that are not named often will not be included in the trust principal. In this case, however, the appeals court determined that the transfers had been effective. 

As a law firm that focuses on wills and trusts, we do not recommend that individuals rely on this decision in their own planning. Although the decision might come in handy for overlooked assets or mistakes, we have found that specificity is usually the best approach to avoiding probate disputes. Simply including a sweeping, catchall statement may not always have legal effect in a trust document. At a minimum, such general language might invite a dispute brought by creditors against the estate. That, of course, is usually not the desired outcome when someone sets up a revocable trust to avoid probate in the first place.

Source: Wealth Management, “Court Approves Easy Probate Avoidance for Real Estate,” Gregory Monday, June 1, 2015

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