Living Trusts

Estate planners often recommend Living Trusts as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, answers to many commonly asked questions are below. If you have questions that are not answered below, your title company representative may be able to assist you, however, one may wish to seek legal counsel. Who are the parties to a Trust? A Family Trust is a typical trust in which the Husband and Wife are the Trustees and their children are the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlors usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out. What is a Living Trust? Sometimes called an Inter-vivos Trust, the Living Trust is created during the lifetime of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the body of the Trust is distributed to their beneficiaries. Can a Trust hold title to Real Property? No, the Trustee holds the property on behalf of the Trust. Is a Trust the best way to hold my property? Only your attorney or accountant can answer that question. Some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate, and/or to shield property from attack by certain unsecured creditors. What taxes can I avoid by putting my property in trust? Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes. You should check with your attorney or accountant before taking any action. Can I homestead property that is held in a Trust? Yes, if the property otherwise qualifies. Can a Trustee borrow money against the property? A Trustee can take any action permitted by the terms of the Trust, and the typical Trust Agreement does give the Trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first. Can someone else hold title for me “in trust?” Some people who do not wish their names to show as titleholders make private arrangements with a third party Trustee; however, such an arrangement may be illegal, and is always inadvisable because the Trustee of record is the only one who is empowered to convey, or borrow against, the property, and a Title Insurer cannot protect you from a Trustee who is not acting in accordance with your wishes despite the existence of a private agreement you have with the Trustee.

Title Insurance Requirements for Insuring Trusts

In today’s world of busy probate courts and exorbitant death taxes, the living trust has become a common manner of holding title to real property. The following may help you understand a few of the requirements of the title insurance industry if title to property is conveyed to the trustee of a living trust. What is a trust? An agreement between a trustor and trustee for the trustee to hold title to and administer designated assets of the trustor for the use and benefit of one or more beneficiaries. Can a trust itself acquire and convey interests in real property? No. The trust is an arrangement between a trustee and the trustor. Only the trustee, on behalf of the trust, may own and convey any interest in real property. The trustee may only exercise the powers granted in the trust. What will the title company require if a trustee holds the title to the property which is part of the trust? A certification of trust containing the following information: Date of execution of the trust instrument, Identity of the trustor and trustee, Powers of the trustee, Identity of person with power to revoke trust, if any, Signature authority of the trustees, Manner in which title to the trust assets should be taken, Legal description of any interest in the property held by the trust, and A statement that the trust has not been revoked, modified, or amended in any manner which would cause the certification to be incorrect and that the certification is being signed by all currently acting trustees of the trust My trust contains certain amounts of money to be given to various charities which is none of your business. Can I omit these pages? Because many different provisions may be on the same page, the answer must be no -- but if the title company requires a copy of the trust, it may accept a copy with those amounts blacked out. If there is more than one trustee, can just one sign? Maybe. The trust must specifically provide for less than all to sign. Can the trustee give someone a power-of-attorney? Only if the trust specifically provides for the appointment of an attorney-in-fact. What will the title company require if all the trustees have died or are unwilling to act? If the trustor is not able to do so, or the trust provisions prohibit the trustor from appointing a new trustee, the court may do so. How does a notary acknowledge the signature of the trustee? Title is vested in the trustee. Hence, if the trustee is an individual or a corporation, then the new general form of acknowledgment will be prepared to reflect the intrinsic nature of the trustee. How would the deed to the trustee ordinarily be worded to transfer title to the trustee? “John Doe and Mary Doe, as trustees of the Doe family trust, under declaration of trust dated January 1,1992.” Are there any limitations on what a trustee may do? Yes, the trustee is limited principally and most importantly by the provisions of the trust and, thus, may only act within the terms of the trust. The probate code contains general powers which, unless limited by the trust agreement, are sufficient for title insurers to rely on for sale, conveyance, and refinance purposes. Article by CLTA

Land Contract

An alternative to a non-conforming loan is the use of a land contract, which is allowed in some states. A land contract is an agreement between a buyer and a seller, where the buyer agrees to make periodic payments to the seller. The title to the property only transfers to the land contract buyer on fulfillment of the land contract obligations. A land contract can be helpful for those who need time to establish or improve their credit rating. There are only small closing costs, and payment can help establish a good mortgage payment record. This can help establish an overall good credit rating, and it is possible for the buyer to later refinance the land contract with a conforming loan. On the other hand, there are risks associated with land contracts. Land contract purchases are not necessarily recorded in the public record, and there are no guarantees that the seller will be able to transfer a clear title to the buyer upon fulfillment of the land contract. There also is no lender assuring that the purchase price for the property is justified, and no inspection of the property’s condition. Another alternative to a non-conforming loan is assuming the seller’s mortgage. By assuming a mortgage, if the mortgage is assumable, it is possible to save on closing costs, and may allow you to obtain a favorable interest rate.

Hot, Normal, and Cold Markets

Hot Market This is an extremely competitive market and is advantageous to the seller. Sometimes, homes will sell as soon as they are listed or even before homes are listed. Typically, during a hot market, multiple offers will be made on each home and more often than not, homes will sell for more than the asking price. It is even more crucial to be prepared and to be ready as a buyer when the market is hot. It can be easy to get caught up in the bid for a home, but if you are prepared (pre-approved, solid in price range, realistic about your needs), it is easier to remain focused on your housing needs and price range. Normal Market In a normal market, there is a fairly large number of homes available and an average number of buyers. This market does not necessarily favor the buyer or the seller. A seller may not have as many offers on their home, but he or she may not be desperate to sell either. Again, it is the buyer’s responsibility to be prepared. During a normal market, the chances to negotiate are higher than in a hot market. As a buyer, you can expect to make offers at lower than the asking price and negotiate a price at least somewhat less than what the sellers are asking. Cold Market In a cold market, houses may be listed for more than a year and the prices of houses listed may drop considerably. This market is advantageous to the buyer. As a buyer, you have the time to make an offer that works to your best interest. It is not uncommon to low-ball and to find that sellers are accommodating to meet your needs. Keep in mind that even though this market is a great time for buyers, you do not want to lose your dream home by being unrealistic. Your goal is to get your dream home at the best possible price.