Putting Property in a Trust in California

How to Transfer Property into a Trust

Funding a trust — transferring assets into it — is as important as creating the trust. An unfunded trust is useless for probate avoidance purposes. Different types of assets require different transfer methods: real estate requires a new deed, financial accounts require updating account titling with the financial institution, business interests require updating operating agreements or stock certificates, and vehicles require DMV retitling. KDA works with clients to ensure all significant assets are properly transferred into the trust.

Real Estate in a Trust

To transfer California real estate into a trust, you must record a new deed transferring the property from your name to the trust. The deed must be prepared by an attorney or title company and recorded with the county recorder. The transfer must be structured correctly to avoid triggering property tax reassessment under Proposition 13 and Proposition 19. A transfer to a revocable living trust by the owner is excluded from reassessment under California Revenue and Taxation Code Section 62(d). KDA coordinates with title companies and estate planning attorneys to ensure real estate transfers are done correctly.

Proposition 13 & Property Tax

Proposition 13 limits property tax increases to 2% per year as long as the property is not sold or transferred in a way that triggers reassessment. Transferring property into a revocable living trust does not trigger reassessment — the transfer is excluded under California law. However, transferring property out of the trust to a beneficiary at death may trigger reassessment under Proposition 19 if the beneficiary does not use the property as their primary residence. KDA analyzes the Proposition 13 and 19 implications of every real estate transfer.

Financial Accounts in a Trust

Bank accounts, brokerage accounts, and other financial accounts can be transferred into a trust by contacting the financial institution and updating the account titling. Most financial institutions have forms for this purpose. The account is retitled from "John Smith" to "John Smith, Trustee of the John Smith Revocable Living Trust dated [date]." The account number typically does not change. Retirement accounts (IRAs, 401(k)s) should generally not be titled in a trust — they should have individual named beneficiaries.

Business Interests in a Trust

Transferring business interests into a trust requires updating the business's governing documents. For an LLC, the operating agreement must be amended to reflect the trust as the member. For a corporation, the stock certificates must be reissued in the trust's name. For a partnership, the partnership agreement must be amended. These transfers must be done carefully to avoid triggering any restrictions in the governing documents (such as right of first refusal provisions) and to ensure the transfer does not affect the entity's tax status (particularly for S corporations).

Retirement Accounts & Trusts

Retirement accounts (IRAs, 401(k)s, 403(b)s) should generally not be titled in a revocable living trust. Transferring an IRA to a trust is treated as a distribution — triggering income tax on the entire balance. Instead, retirement accounts should have individual named beneficiaries. If you want a trust to receive retirement account distributions, you can name the trust as the beneficiary — but this requires careful drafting to ensure the trust qualifies as a "see-through trust" and allows the beneficiaries to stretch distributions over their lifetimes. KDA reviews retirement account beneficiary designations for every estate planning client.