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Affidavit Death of Trustee

To take control of real property the Successor Trustee must file an Affidavit Death of Trustee. This is a declaration, under oath, by the Successor Trustee. The Successor Trustee declares the owner has died and attaches a certified copy of the death certificate. The Successor Trustee further declares he or she is authorized to take control of the real estate property according to the terms of the trust.

The affidavit is filed with the county recorder.  It is now of public record the Successor Trustee has the authority to take control of the real property. Control is limited to what is directed by the trust. Typically, the trust directs the Successor trustee to distribute the real estate property to specified persons.

Notice of Death to County

California law requires the Successor Trustee to file a “Change in Ownership Statement, Death of Real Property Owner” within 150 days after the date of death. Change in ownership occurs in a revocable trust on the date of death of the Settlor. Notice of ownership change is filed with the Assessor’s office in the county where the real property is located.

Notice to Beneficiaries of Trust

California law requires the Successor Trustee to provide written notice to beneficiaries of the trust and heirs the decedent. This notice must be provided within 60 days from date of death. Information provided is how to contact the Successor Trustee, the time limit on a challenge to the trust and how to obtain a copy of the trust.

The exact requirements of this notice are found in California Probate Code Section 16061.7. A trustee who fails to serve the notification as required by Section 16061.7 on a beneficiary is responsible for all damages, attorney’s fees, and costs caused by the failure.

Real Property Transfer into Limited Liability Company (LLC)

California Limited Liabilities Companies (“LLCs”) are often used to own real property for asset protection. To shield the owner from individual liability the real property must be owned by the LLC.

Prior to transfer the owner should obtain written permission from the lender. Real estate securing a loan has a “due on sale” clause in the promissory note. The promissory note allows the lender to “call” the loan as due and payable in full anytime there is a change in ownership.

The transfer from an owner as an individual to the same owner of a limited liability company is considered a change in ownership in the due on sale clause.  Even if the proportional ownership interest remains exactly the same the transfer is a change in ownership in a loan document and the entire balance may become due and payable.

If ownership interest in the Limited Liability Company and the real property is the same there is no transfer tax and no increase the property tax basis. California has transfer tax and property tax exemptions if proportional interests are kept the same.

If any change in ownership does occur the proportional change at fair market value is subject to transfer tax.  The basis for property tax will also be increased proportionally to the fair market value of the real property for property tax.A limited liability company owned by one individual or a married company is disregard for income tax purposes and no additional tax return is needed. Limited Liability Companies allow flow through income and capital gains and as a result avoid double taxation.

Community Property Step-Up Basis

Trusts must be funded with real property to avoid probate. Funding is by deed from the owner to the owner as trustee of his or her trust. There is no transfer tax, property tax increase or transfer tax on trust transfers. On death of the owner, the successor trustee transfers real property by deed to heirs of the decedent.

Trust transfers of real property by a married couple have a unique problem. A transfer out of joint tenancy into a trust may not be treated as community property by the IRS for a full step-up in basis and the opportunity to avoid or reduce capital gains tax is missed.

If community property treatment is desired, the more conservative approach is in writing expressly state the real estate is community property. The easiest way to do this is to place community property affirmation directly on the deed terminating the joint tenancy to fund the real property into the trust.

The “community property” designation reduces or eliminates capital gains tax. The surviving spouse receives a full step-up in basis on real property.  “Community property” designation has legal issues in the event of divorce or dissolution of marriage. Separate property interest in real property designated as community property may lose its separate property interest and the other spouse obtains a one-half ownership in the real property in the event of a divorce.

How the County Recorder and a Living Trust Avoid Probate of Real Property

The state of California maintains databases of real property and real estate ownership by county. The owner of record in the county database is final and cannot be disputed. To transfer ownership of real property the owner of record must sign a deed and file the deed with the County Recorder.

The problem occurs when the owner has died and cannot sign a deed. The County Recorder can transfer real property owned by a decedent only by order of a probate judge of the Superior Court of California.

Probate Court can be avoided when real property is owned by an individual’s trust. California law authorizes the County Recorder to transfer property out of the trust owned by an individual who has died by affidavit and deed.

First an “affidavit of death of trustee” with a death certificate attached is filed with the County Recorder. An affidavit is a sworn statement administered by a notary public that the facts stated in the affidavit are true. The notary does not have to verify the facts stated in the affidavit. The notary does have to verify the identity of the person and document the swearing.

The affidavit states who died; details on the prior recording to fund the trust and most importantly, who is authorized under the terms of trust to sign and record documents with the County Recorder. The affidavit is recorded with the County. As a result a new person steps into the decedent’s shoes and can act on behalf of the decedent.

The second step is to transfer the real property out of the trust and to the beneficiaries of the trust. This transfer is done by a “quit claim deed.” Beneficiaries are individuals named in the trust who are to receive the property of the trust. A quit claim deed transfers ownership “as is” with no warranties of title or debt.

 Probate is a court action with all the safeguards, protection and red tape that comes with public adjudication. A trust is a private action between individuals with little government over site or protection. As a result trust transfers of real property are more efficient.

Probate takes about one year, cost thousands of dollars and is open to the public. Trust administration takes about one month, costs hundreds of dollars and is private. But to avoid probate the real property must be transferred into the trust while the owner is living.

Deed and Record is an online service to prepare quit claim deeds and affidavit of death of trustee for real property transfers into or out of trusts. The Internet Service records deeds and affidavits death of trustee it has prepared with the County Recorder. Deed and Record does not offer legal advice or services.

Deed and Record markets through websites, primarily, DeedAndRecord.com. The owner of the websites is Mark W. Bidwell, Attorney at Law and CPA Inactive. Office is located at 18831 Von Karman Avenue, Suite 270, Irvine, California 92612. Phone number is 949-474-0961. Email is Mark@DeedandRecord.com.

California Propety Tax Explained

California Constitution Article XIIIA limits the property tax base on real property to the purchase price plus a maximum two percent annual adjustment for inflation. But certain changes in ownership will result in the property tax base adjusted to current “full cash value” or “fair market value.”

Property tax base adjustments happen in the removal or addition of a co-owner on title, the death of a joint tenant and the traditional sale of real property to a bona fide third party. The property tax base is adjusted to the full cash value in the proportional amount of ownership

California Constitution Article XIIIA protects the property tax base in very specific ownership changes. The property tax base in all transfers between spouses remains the same. This includes transfers due to divorce, dissolution of marriage and legal separation.  The removal or addition of a spouse on title during marriage is also protected.

Transfers between parents to and from children and grandparents and grandchildren are protected for the primary home and the first one million dollars of the full cash value of all other real property.

Persons over the age of 55 years can change their current principal residence for one of equal or lesser value provided both residences are located within the same county and the sale and purchase occur within two years.

California Code of Regulations Section 460 et seq. exempts transfers when the underlying ownership interest remains the same.  This allows transfers into legal entities and trusts provided the person or persons owning the real property remain the same.

Transfers of real property between separate legal entities or by an individual to a legal entity (or vice versa), which result solely in a change in the method of holding title and in which the proportional ownership interests in each and every piece of real property transferred remain the same after the transfer does not result in an increase in the property tax base.

The transfer of real property into a trust does not change the property tax basis. The transfer of an ownership interest in a legal entity holding an interest in real property by the trustor to a trust which is revocable by the trustor is protected.

Parent to Child and Grandparent to Grandchild Transfers

Real property and land transfers from parent to child and from grandparent to grandchild have documentary tax, property tax and capital gains tax traps and tax savings.  Change in California real estate ownership may incur documentary transfer tax and capital gains tax. Ownership changes may increase future property taxes. For simplicity, the term “parent-child exclusion” refers to both the parent-child exclusion and the grandparent-grandchild exclusion.

Change in ownership of real property increases the base for property tax. The increase is either the sale price or the market value at date of ownership change. California excludes the first $1 million plus the principal residence of the parents in parent-child transfers. ‘Claim for Reassessment Exclusion for Transfer between Parent and Child’ form must be filed within three years after the date of the transfer to obtain this exclusion. 

Parent-child real property transfers do not incur capital gains tax. But the future sale of the real property will incur capital gains tax. The capital gains tax is on the difference between the parent’s purchase price to acquire the property and the sales price. The parent’s purchase price is adjusted for improvements to the property and depreciation, if any.  The purchase price plus improvements less depreciation is the ‘basis’ for a capital gains tax.

A transfer while the parent is living is a gift. In legal jargon an ‘inter vivos’ gift. The purchase price paid by the parent, (the basis) transfers with the property. The child assumes the parent’s basis or purchase price in the property. Any future sale will incur a tax on the difference between the parent’s basis and the sales price.

A transfer or inheritance due to death receives a ‘step-up’ in basis. The parent’s purchase price or basis disappears. The new basis is the market value of the real estate on the date of death of the parent. A sale in the future incurs capital tax on the difference between the market value on date of parent’s death and the sales price.

The last tax on land and real property transfers is the documentary tax. This tax currently is $1.10 per thousand dollars plus any local government additions. The California Revenue and Taxation Code Section 11930 exempts all grants, assigns, transfers or conveys that are gifts or transfers due to death. But the grant deed or quit claim deed must state under penalty of perjury on the face of the deed this exemption to avoid the documentary tax.

Post Death Trust Administration in California Tip Sheet

Tip Sheet for Successor Trustees to transfer real property, provide required legal notice and prepare an accounting. Article is provided by Mark W. Bidwell, attorney at law and CPA Inactive.

A Successor Trustee is personally liable to the beneficiaries of a trust for any breach of duty. Typical breaches are failure to transfer or sell real property in a timely manner, failure to provide proper legal notice and failure to provide an accounting. This tip sheet is provided by Mark W. Bidwell, a California attorney to prevent such breaches.

A trust has three actors; the Settlor who created the trust, the Trustee who has the duty and obligation of managing the assets of the trust and the Beneficiary who enjoys the benefits of the assets of the trust. While the Settlor is living, he or she occupies all three roles.

Upon the death of the Settlor, new people step into the shoes of the Trustee and Beneficiaries. A person named in the trust as Successor Trustee has the duty of distributing the assets as directed by the trust. Persons identified as receiving assets of the trust are the Beneficiaries.

Trusts most often include real estate. To take control of the real estate the Successor Trustee must file an affidavit of death of trustee in the county where the real estate is located. The affidavit provides the Successor Trustee authority to either sell or transfer the real property.

More information on affidavits is available at Deed and Record. Deed and Record is an internet service to prepare affidavits and trust transfer deeds for Successor Trustees. Services include recording the deed with the County Recorder.

California probate code requires that within 60 days of death the Successor Trustee must provide notice to the Beneficiaries of the trust and the decedent’s heirs that the trust has become irrevocable as well as how to contact the Successor Trustee.  Beneficiaries are also notified they are entitled to a copy of the trust if they so request.

In addition to legal notice, an accounting is needed from the date of death to the final distribution of assets of the trust. An accounting keeps the Beneficiaries informed. An accounting also provides the information needed for filing federal and state tax returns for the trust.

Author’s profile, Mark W. Bidwell is licensed to practice law in California. Office is located at 18831 Von Karman Avenue, Suite 270, Irvine, California 92612. Phone number is 949-474-0961. Mr. Bidwell markets through websites, www.BidwellLaw.com and www.DeedandRecord.com

Avoid a Race with Death to the County Recorder’s Office at DeedAndRecord.com

Death bed transfers to sever joint tenancy in real property require strict compliance with California Civil Code Section 683.2(c).  Either before the death of the severing joint tenant, the quit claim deed to severe joint tenancy is recorded in the county where the real property is located; or the quit claim deed to severe joint tenancy is executed and acknowledged before a notary public not earlier than three days before the death of that joint tenant and is recorded in the county where the real property is located not later than seven days after the death of the severing joint tenant.

 A dispute between a former girl friend of the decedent and his new girl friend arose over ownership of a house. Decedent’s quit claim deed to his new girl friend was recorded 59 minutes after his death.  The joint tenancy was not severed because the quitclaim deed in question was executed before the three day grace period and was not timely recorded.  

 The old girl friend was on title as joint tenant. On his death bed her former boy friend wanted his half of the house to go to his new girl friend. He executed a quit claim deed to give away his half of the house to his new girl friend.

 Eight days before his death, the decedent signed a quitclaim deed conveying his interest in the property .He died on March 29, 1995, at 11:55 a.m..  A friend handed the quitclaim deed to the recording clerk at 11:15 a.m. on the date of death. However, a preliminary change of ownership and some additional form were needed. The recording clerk supplied the friend with the additional forms. At 12:54 p.m., the friend handed the quitclaim deed, together with the completed forms and fees to the cashier in the county recorder’s office and the deed was recorded. But the deed was recorded after death and the deed was executed before the three day grace period. The old girl friend was the owner of the entire house. She promptly kicked out the new girl friend