Land Trusts in California

Revoke General Power Of Attorney - Land Trusts in California

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In California, general trust law is found in the Probate Code §§15000-19403. There is no exact land trust statute in California, unlike Illinois land trust law, (765 Ilcs 405/410/415/420), Massachusetts firm trust (Mbt) law (M.G.L.c.182, §2), and Virginia land trust law (Va. Code Sec. 55-17.1).

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Revoke General Power Of Attorney

So, land trusts created in California for California property are based on general trust law in the aforesaid California Probate Code. But an out-of-state land trust may be formed that would hold title straight through the trustee of a California property, to take benefit of more beneficial statute and case law of other state. Indeed, the Virginia consummate Court in Air Power, Inc v. Thompson, 244 Va. 534, 422 S.E. 2nd 786 (1992), has confirmed that Va. Code Sec. 55-17.1 gives the trustee of a land trust both legal and equitable power of the real property, which protects the privacy of the beneficiaries.

Indeed, since California does not have a exact land trust statute, there is no legislative history nor developed case law on it in this state, only California general trust law and case law. But a general trust law may have some advantages over a exact land trust statute with more requirements. Indeed, Illinois land trust statute (75 Ilcs 435) requires that holders of power of direction owe fiduciary duties to holders of beneficial interests. California general trust law does not have a similar requirement.

In any event, the avoidance of probate over a real property in a land trust trumps all difficulties in its creation.

I. California general Trust Law:

A. Creation Of Trust:

California Probate § 15000 states that "(t)his division (Division 9 of the Probate Code) shall be known and may be cited as the Trust Law." And § 15001(a) states that "(e)xcept as otherwise in case,granted by statute: This division applies to all trusts regardless of whether that were created before, on, or after July 1, 1987."

Among other methods of creating trust, a trust may be created by: "(b) (a) change of property by the owner while the owner's lifetime to other person as trustee," under § 15200(b) of the California Probate Code. And "a trust is created only if there is trust property," under § 15202 thereof.

"A trust may be created for any purpose that is not illegal or against group policy," under § 15203 thereof. A land trust is not for an illegal purpose, nor is it against group procedure in California, although it is not widely used in this state.

And "a trust, other than a charitable trust, is created only if there is a beneficiary," under § 15205 thereof.

B. Trust Of Real property And Personal Property:

So as not to violate the Statute of Frauds, which requires a written instrument to be enforceable, §15206 states that "a trust is relation to real property is not valid unless evidenced by one of the following methods: (b) By a written instrument conveying the trust properly signed by the settlor, or by the settlor's agent if authorized in writing to do so."

And under § 15207 (a) thereof, "(t)he existence and terms of an oral trust of personal property may be established only by clear and convincing evidence." Under § 1528 thereof, "consideration is not required to create a trust...."

Lastly, "a trust created pursuant to this chapter (1, part 2, division 9 of the Probate Code) which relates to real property may be recorded in the office of the county recorder in the county where all or a part of the real property is located," under § 15210 thereof.

Ii. Mechanics Of A Land Trust:

A. Advantages And Benefits:

(1.) Privacy:

One of the much-heralded advantages of a land trust is that a grant deed-in-trust of a trust property in the name of a dissimilar trustee (private or institutional) may be recorded with the County Recorder, but the land trust business agreement that states the names of the truster/settlor/investor and the beneficiaries is not recorded.

Thus, the creator/grantor of the land trust: the trustor/settlor who invests in real property can keep his/her/its name, as well as the names of the beneficiaries out of the County Recorder's and County Assessor's books, and to a clear extent hide the venture from group view.

But a judgment creditor of a trustor/settlor or of a beneficiary can field the latter to acknowledge written interrogatories on his/her/its assets, or to debtor's examination under oath in court to decree assets, and not merely rely on County Recorder and Assessor asset searches.

The land trust business agreement may also use a name for the land trust dissimilar from the name of the trustor/settlor who created it. This is other asset security benefit. And if the beneficiary thereof is also the same trustor/settlor, the latter may prescribe his/her living trust or wholly-owned wee liability firm as the beneficiary to hopefully avoid gift tax issues.

(2.) Avoidance Of Probate:

Moreover, just like successor trustees may be designated in the land trust agreement, successor beneficiaries may also be prime to avoid disruptions in distribution of trust assets at termination of the trust, outside of probate proceedings.

A land trust may be created as revocable (terms of the business agreement may be changed) or irrevocable (cannot be changed), but the latter requires the filing of cut off tax returns and is taxed at a higher rate than the trustor/settlor's individual tax rate, unless carefully a straightforward trust in which all incomes created are taxed to beneficiaries. For federal income tax implications, if the grantor/trustor is also the beneficiary, the Internal income service (Irs) classifies it as a grantor trust that has tax consequences that flow directly to the trustor's Form 1040 and state return.

(B.)Disadvantages And Pitfalls:

(1.) Separtate business agreement For Each Property:

In order to reserve the privacy of the venture or transaction and the asset security benefits of the land trust, only one real estate property can be listed as held in it. Thus, a dissimilar land trust business agreement is created for each property. This could be cumbersome, although the same trustor/settlor, trustee, and beneficiary can be named in each agreement.

(a) Simpler Alternatives:

Simpler alternatives are to buy venture or rental properties straight through a wee partnership (Lp) or a wee liability firm (Llc), or change such properties to a more flexible living trust that does not want the filing of cut off tax returns, or change the proprietary interests of an Llc (not title of the property) to a living trust.

An Llc may also create a land trust by conveying title of a property to the trustee, and prescribe itself (Llc) as the beneficiary for privacy of ownership. Sometimes less is more; for indeed, creditors can see straight through and have recourse against avoidance of carrying out of judgment on properties straight through asset security schemes. And transfers of ownerships of properties may ensue in tax assessments.

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