Danger Ahead: Transferring Real Estate into a Trust

Danger Ahead: Transferring Real Estate into a Trust

Introduction

Creating a revocable living trust that holds real estate is often an integral part of estate planning. The primary reason behind transferring property into a trust, specifically a revocable living trust, is to bypass the potential complication of probate proceedings upon the death of the property’s original owner (this is considered to be part of the “funding process” that should occur after trust formation). However, if not prepared correctly, serious issues can arise later following the transfer of property into a Washington revocable living trust.

The Importance of Correctly Naming the Grantee in Transfers to Trusts

In Washington state, the transfer of real estate into a revocable living trust requires the accurate identification of the trust. Interestingly, the trust itself doesn’t hold the title to the real estate within the confines of Washington law. Instead, the trustee, who could either be an individual (or individuals serving as co-trustees) or a legal entity (like a corporation or limited liability company), holds the title. This is different than the status of a formal legal entity like a limited liability company or corporation, which has its own separate legal existence and can own and transfer real estate in its own name.

For instance, suppose John Smith, a homeowner at 123 Main Street, consults with a Washington estate planning attorney to establish a revocable living trust to be identified as the “John Smith Revocable Living Trust dated July 1, 2023,” which names John as the initial trustee. Following the formation of the trust, John now wants to transfer his home on Main Street into the trust. The successful transfer of the title to the trust requires that he signs a deed which names the grantee (the transferee of title) as “John Smith, as Trustee of the John Smith Revocable Living Trust dated July 1, 2023”. A transfer of the title to “John Smith Revocable Living Trust dated July 1, 2023” directly, would be ineffective, as the John Smith Revocable Living Trust dated July 1, 2023 has no separate legal identity or existence under Washington law. It can only function and act (including the receiving of property and assets) through its trustee. Typically, the form of a deed used to transfer title into a revocable living trust is a quit claim deed, although there may be reasons to use a different type of deed.

The use of the correct trust name is of utmost importance in the process of transferring real estate into a revocable living trust. If the name of the grantee is not correct, then title may not effectively transfer, causing significant title issues in the future which can result in significant time and expense to fix.

Conclusion

Consulting with a well-informed estate planning or real estate attorney is advisable to guarantee the accuracy and success of the transfer. This cautionary step helps avoid potential pitfalls in the journey of property transfer into a trust, especially when dealing with a Washington revocable living trust. Fennemore’s Spokane estate planning and real estate lawyers are experienced with the transfers of property into and out of revocable living trusts and irrevocable living trusts.

If you want to discuss the transfer of property into or out of a revocable or irrevocable trust, contact us for a consultation.