Trust question

First of all, this is a legal question, not a tax one. But since I am familiar with this issue, I will answer it.

Whether a trust has been funded or not is largely irrelevant. If a trust was not funded, you can start all over and none of this matters - except that you wasted a whole lot of money creating the trust in the first place.

Normally trusts are identified by their initial date of creation. If they are changed, either a separate amendment can be added, or the entire trust can be revised. In either case it's the same trust, initially created on the same date.

When someone comes to me with a trust that has been funded, I normally create a new trust, call it "revised and restated" and identify it as a revision of the trust created on the original date. In that way the titles to properties in the trust don't have to be changed, because it's still the same trust, but with new provisions.

If you own property and have your appendix removed, you're still the same person but slightly altered. That doesn't mean that you have to change the title to your house. Revising a trust is like changing your appendix.

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Thanks for helping and I am sorry it was not a tax question but I am unaware of a usernet group that answers these type of questions. As to your comment about wasting a whole lot of money; I think that is quite common. People find out that their original trust attorney isn't what they were seeking and they find a different one. However new attorneys almost always want to use their trust format. Hence a new trust. Thanks again. Ron

You could try misc.legal.moderated.

Depends on how much needs to be changed. Trusts are long and complicated. Attorneys know their own trusts, but might have to spend hours going through someone else's to know it well enough to amend it. So it is often cheaper to have a new attorney draft a new trust than to have him spend time learning the old one before he can even start to work.

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EXCELLENT Comment by Stu!

This is very similar to the person who does their own tax return then wants a tax pro to "just look it over and see if I did it right." The time it takes to review someone else's work often costs more than just doing it to start with.

Gene E. Utterback, EA, RFC, ABA

Recognizing, of course, a major national chain asks taxpayers to come in and let them review their tax return (for free).

I'm a T&E (trusts & estates) lawyer; been one for the last 43 years. Absolutely correct that it is far less expensive to restate a revocable trust than to go through it line by line to amend it. With respect to titles, in most states (I'm a California attorney) trusts are not separate legal entities that can hold title to property. Rather, title is held in the name of the trustee, with sufficient information to identify the trust. There is no "right" way; you simply need the name of the trustee and enough information to identify the trust. For example, all of these are "right" ways to hold title where John Smith is the Trustee, the trust is named "The Smith Family Revocable Trust" and it was signed on May 1, 2010. By right way I mean the title is acceptable to a financial institute or title company. John Smith as Trustee uta dated May 1, 2010. (uta stands for "under trust agreement") John Smith as Trustee of The Smith Family Revocable Trust. John Smith as Trustee of The Smith Family Revocable Trust dated May 1, 2010.

I know this to be true, but why is it so? A trust is a separate legal entity, is it not? Why can it not hold property in the name of the trust?

And, what happens when all the property is titled John, trustee of the ABC trust, and then John moves on and Sam takes over as trustee? Does everything need to get renamed?

These days a trust is considered a legal entity. But when trusts first got started hundreds of years ago, they were a secret arrangement where you gave property to someone you trusted to hold property for someone you didn't think would be able to handle it. In those times title was always held by the trustee in his own name, because that's the way it was set up.

Mostly due to tradition, it seems to me, title is generally held these days is "John Doe, as trustee of the Smith Family Trust under declaration of trust dated January 13, 2001." Some county recorders will accept deeds simply to "the Smith Family Trust" but some require it to go into the name of the trustee, in that stated capacity.

Nothing needs to get renamed. All you have to do is show the trust, which shows how successor trustees are appointed. Then show that John is no longer the trustee (e.g. death certificate). The next person named in the trust (or determined under the trust) is the new trustee and has all the powers of the trustee without having the title transferred into his individual name.

Thanks for all the thoughtful commentary. As the original poster , one questions remains . Lets say a trust is redone and it's titled "The John Smith Revocable Trust Date June 1, 1991, Restated" , signed October 8, 2010. Does the trustee have to produce the 1991 trust (what if it's lost) ? Thanks Ron

As long as the new document is a full revision/restatement of the trust, the prior trust terms are superceded in full, so the document need not be disclosed.

When you get a new driver's license to show as ID, you only need to show the current one, not all the past ones. Same thing with trust revisions.

The reason why title is held in the name of the trustee -- at least in California -- actually goes beyond tradition. California Probate Code Section 15200 sets forth the different ways to create a trust in California and three of the five ways specifically involves a transfer of one nature or another to "another person as trustee." The fourth is a declaration by the existing owner that the owner holds the property "as trustee." (The fifth really isn't relevant since it is an enforceable promise to create a trust.) As you can see, our statute actually calls for a transfer to another person as trustee and not a transfer to the trust itself.

This issue of whether a trust is a separate legal entity gets even more complicated when you figure that the Internal Revenue Code does not recognize revocable trusts and certain irrevocable trusts (trusts defined as grantor trusts) as separate entities for income tax purposes but treats other irrevocable trusts as separate taxpayers for income tax purposes. Then factor in the concept that an irrevocable grantor trust which is disregarded for income tax purposes is treated as a separate legal entity for gift tax purposes!

So really when you pose the question of whether a trust is a separate legal entity, the answer is a question: "for what purpose?"

Interesting. My university has a large number of individually owned faculty residences on university-owned lots that are made available to faculty couples under long-term leases. The university is currently eager to tighten up lease terms and increase lease rates on existing leases.

As one tactic for doing this, they've been insisting that faculty couples who put their residence ownership into a trust as part of their estate planning terminate their existing lease and sign a new (and less favorable) lease, on the grounds that "the ownership of the residence, or the lease, is changing".

The above seems to imply that if the faculty owners are also the trustees, then it's at least arguable that the ownership is _not_ changing.

The IRS statutes saying that revocable trusts are ignored for tax purposes are just the IRS rules. They don't, by themselves, apply to local law that defines trusts. In California state law also exempts transfers to trusts from increases in property tax or imposition of documentary transfer tax.

But neither of those things imply that a private entity cannot refuse to allow the tranfer of a lease from a person to his trust, because it is normally considered to be a separate legal entity. Remember that the IRS treats LLC's as if they don't exist, though under state law they certainly do.

Now it may be there is some other rule of law that will allow someone to transfer a lease without the consent of the lessor (assuming it is permitted in the lease). In common law there is a prohibition against unreasonable restraints on alienation. That could well apply to leases in your situation. Check with a local lawyer to determine what the rule is in your state.

That really just restates the question. Why is the Probate Code written so the trust cannot hold property in the name of the trust?

I don't think it does. The law just requires that, to create a trust there initially be a trustee. It doesn't say that the trustee must be the one named as the person transferring or receiving property.

The CA statute talks about trusts as entities. The statute Jon Gallo refers to starts out,

"15200. Subject to other provisions of this chapter, a trust may be created by any of the following methods:..." To me this implies that a trust is a legal entity. It concludes by saying that a trust can be created by "An enforceable promise to create a trust." That also implies that a trust is a separate entity that is independent of the trustee.

In some counties in California, the recorder requires a deed to a trust to be stated to be to the trustee in his capacity. In other counties they will accept deeds stating that the trust, per se, is the recipient.

The important thing is that for purposes of management and transfer of ownership, the trust is treated as a legal, separate entity.

Saying that a revocable trust is not recognized by the IRS, so it's not really there is unpersuasive. The IRS doesn't recognize LLC's, either. But no one would seriously contend that they aren't legal entities.

Yes, BUT -

What that chain, and myself and every decent pro out there is doing, amounts to several things -

1 - I'm trying to understand the client. The first step in that for me is looking over what was done AND FILED before. This helps me make sure I've accounted for everything they've had in the past;

2 - if I find something wrong on that PREVIOUSLY FILED return, I can recommend that WE amend it (for which I charge). This puts money in my pocket.

There is a bit of difference between reviewing a previously filed return and reviewing a return that has yet to be filed. In the first case, no liability attaches to me as a pro. In the second case, I could easily find myself on the hook as substantially contributing to the information reported in the return.

Gene E. Utterback, EA, RFC, ABA