Transferring Real Estate Held in a Trust

It's common for people to transfer ownership of their homes and other real estate to revocable living trusts. Transferring property in this way involves preparing, signing, and recording a deed.

How Does a Trust Transfer Real Estate?

If you create a living trust, you'll likely name yourself as the original trustee—the person who manages the trust. After you die, a successor trustee whom you named in the trust document will take over for you as trustee.

You'll also transfer property to the trust and list beneficiaries to receive that property. When it's time for a beneficiary to take ownership of a home held by the trust, the trustee will transfer ownership by using a deed. The trustee will need to sign the deed and record it with the local county department that keeps land records.

What Kind of Deed Will You Need to Transfer Real Estate?

A deed is a document that will transfer ownership of the property from the trust to the new owner. There are several kinds of deeds. You will need one that is called a "quitclaim" or "grant" deed.

Don't use a "trust deed," also called a "deed of trust," even though that probably sounds like just the form you need. A trust deed is used when someone is mortgaging property, not when transferring it to a new owner.

Every state has rules about the language deeds must contain and how they must be notarized or witnessed. Some states even have rules about how much blank space must be left at the top of the page.

Be sure to get a deed form that's valid in your state. If you've been working with a lawyer, the lawyer will probably prepare the deed; if not, you can find forms online, at office supply stores, or at title companies.

What Information Do You Need to Provide in the Deed?

As mentioned above, each state has its own requirements for deeds. In most states, you'll need to supply the following information on the deed.

Names of the Grantor and Grantee

A deed should list the name of the grantor and grantee. The grantor—the trust—is the old owner of the property. The grantee—the trust beneficiary—is the new owner.

Consideration

"Consideration" is something of value—usually money—given in exchange for property. In most real estate transactions, the consideration is the purchase price for the property that the new owner pays.

When transferring real estate from a trust to a beneficiary, there won't be any consideration in the practical sense. But you still might need to list $0 as a purchase price if your state requires the deed to state the consideration. It also might help to type in the fact that the transfer is not a sale. This will show that no transfer tax will be due in counties or states that impose transfer taxes on sales of real estate.

How the New Owner(s) Want to Take Title

If more than one person is inheriting the property, they'll have to decide how they want to hold title. The options depend on state law, and the most common are:

• joint tenancy
• community property (for married couples only)
• tenancy by the entirety (for married couples only) and
• tenancy in common.

Legal Description of the Property

A deed should give a detailed description of the property—usually more than a street address. The legal description usually will be given in metes and bounds or by providing a subdivision plat number for planned subdivisions. You should generally use the property's legal description word-for-word from the previous deed.

Signature of Grantor and Necessary Witnesses

You'll need to sign the deed in your capacity as trustee—for example, "Joan S. Garcia, trustee of the Anthony Ramirez Living Trust, dated December 21, 2012."

You'll also need to get the deed notarized, and in some states you'll also need to obtain witness signatures.

How Do You Record the Deed?

Once the deed is signed and notarized, it must be filed (recorded) with the local land records office in the county where the real estate is situated. Different states have different names for this office—the "county recorder," the "register of deeds," or some similar name. In some states, the land records office is part of the county clerk's office. There's a small fee for recording; you can check the county's website or call to find out the exact amount.

In some states, you must file other documents when you record a deed. For example, you might need to file a form to address a potential reassessment of property taxes. In California, for instance, you will need to file a Change of Ownership Report with the deed. Be sure to check with your land records office about other necessary forms before recording your deed.

What If There Are Outstanding Mortgages on the Property?

If money is still owed on the real estate, the debt will stay with the property—meaning the beneficiary will be responsible for paying the mortgage. The beneficiary can contact the mortgage holder (a bank or other lender) to discuss whether the original mortgage payment terms apply or whether refinancing is an option.

When drafting a trust document in the first place, you can include instructions for the trustee to pay off an outstanding mortgage with other trust assets. If you do so, your beneficiary can take ownership without having to worry about making mortgage payments.

For More Information

Because laws vary by state, you might want to talk with an attorney about transferring real estate held in a trust. You also can read our articles about trusts, real estate, and estate and inheritance taxes for more information about this area of estate planning.

To explore another way to leave real estate to loved ones after you die (one that also avoids probate), see What Is a Transfer on Death Deed?