Should the House Be in a Trust?

What the trust is doing

Probate is a court-supervised process for transferring what someone owned at death. It takes time, it costs money calculated against the value of the estate, and it is a public record.

Property held in a properly funded revocable trust is not part of that process. The successor trustee administers it according to the trust instrument, which is generally faster, cheaper and private.

For a California family whose main asset is a home, that difference is the reason trusts are so widely used here. The value of California real property makes the probate arithmetic unattractive.

The failure that undoes it

A trust only controls property that has been transferred into it. For real property that means a deed conveying the house from the owner personally to the owner as trustee, recorded.

Trusts are signed and then not funded with striking regularity. Sometimes the deed was never prepared. Sometimes it was prepared and never recorded. Sometimes the house was refinanced afterwards, the lender required title in personal name, and it was never transferred back.

The result is an estate that pays for both: the cost of the trust and the probate it was meant to avoid. A petition under Probate Code section 850 may fix it after the fact, but that is litigation, and checking the deed now takes minutes.

What a trust does not do

A revocable trust does not protect assets from your own creditors during your lifetime, and it does not by itself produce income tax savings. It is an instrument for controlling how property passes, not a shield.

It also does not remove the need for a will. A pour-over will catches anything not transferred into the trust, which matters precisely because funding is so often incomplete.

When to look at it again

After any refinance, because lenders sometimes require title out of the trust and it does not always go back. After buying or selling property. After a marriage, divorce or death. After a move to or from California, because the rules differ between states.

The check itself is short: pull the current recorded deed and read the vesting. If it does not name the trust, that is the whole problem and it is fixable while everyone is alive.

Funding: the step that actually matters

Real property is transferred into a trust by a deed from the owner personally to the owner as trustee, recorded in the county where the property sits. Until that deed is recorded, the trust does not control the property.

For other assets the mechanics differ: accounts are retitled, beneficiary designations are reviewed, and business interests are assigned. But for most California families the house is the asset that matters and the deed is the step.

Check it by pulling the most recent recorded deed and reading the vesting. If it names you personally rather than you as trustee, the property is not in the trust, whatever the trust document says.

Where funding gets undone

A refinance. Lenders sometimes require title in personal name, and the property is transferred out and not transferred back. This is the single most common way a funded trust becomes unfunded.

A later purchase. A property bought after the trust was created, taken in personal name because nobody thought about it.

A transfer between spouses, or into or out of joint tenancy, made for another reason.

Each of these is fixable while everyone is alive. After a death the route is a petition under Probate Code section 850, which is litigation, costs money and is not certain.

What a trust does not achieve

It does not protect assets from your own creditors while you are alive, because a revocable trust remains yours.

It does not by itself save income tax, and a revocable trust does not have a separate tax identity during your lifetime.

It does not remove the need for a will. A pour-over will catches whatever was not transferred into the trust, and given how often funding is incomplete, that is not a formality.

It also does not remove the need to keep it current. A trust drafted for circumstances that have since changed produces disputes as reliably as no trust at all.

This article is general information about California law and is not legal advice for any specific situation. If you are dealing with this issue, the facts of your matter will change the analysis.