The Family Trust And Real Estate

A Family Trust, also known as a Family Living Trust or a Revocable Family Trust, is a legal entity created by a Trust Agreement to hold ownership to your personal and real property. Your attorney will create the necessary documents to establish the trust. A Trust is created for estate planning purposes.

Purpose Of A Family Living Trust

The purpose of a family trust is to hold your assets, including land, making it easier to pass those assets to your heirs upon your death. Using a Trust allows you to do this without a probate or other court involvement. You establish the successor trustees and beneficiaries of your trust and they automatically control and own the trust and its assets upon your death.

Any terms can be entered in the trust agreement. Provisions that decide how assets are divided and how heirs are taken care of are common.

Trustees and Successor Trustees

When you create a trust you decide on trustees and successor trustees. The trustees control the trust and have full power to make any decisions for the trust. For this reason the Trust creators usually designate themselves as the trustees.

Successor trustees are also designated and become the trustees upon the death or resignation of the original trustees. When they become the trustees they have the same power as the original trustees.

Trusts are normally revocable (can be canceled) while the original trustees are living, after their death the trust becomes irrevocable. The successor trustees control the trust but are required to act in accordance with the trust agreement, which controls how the assets are divided and disbursed.

Beneficiaries

The beneficiaries of a family trust do not control a trust but the trust is set up for their benefit. This could be the minor children of the original trustees. The Trust creators can also set up others or charities as the beneficiary of their trust.

Trustees, successor trustees, other people, charities, or your pet cat, can be beneficiaries of the Trust. You have the option to setup and control how and when your assets are disbursed and to who with a trust.

Family Trust Becomes The Land Owner

When you create a Family Trust you must transfer your real estate into the Trust. At that point the family trust becomes the owner of the property. As you control the trust you still control the property. The transfer is usually done with a quit claim deed from you and any other owners to the trust.

Transferring Land In And Out

As long as you control the trust you can transfer your land out of the trust at any time. Lenders often require property be removed from a trust before they will make a loan.

Summary

You create a Family Living Trust by a Trust Agreement prepared by your attorney. The Trust allows you to transfer your assets including land into the trust and decide who controls those assets and who receives them after your death.

A Tale of Stolen Inheritance of Utah Real Estate

The following story is the best way to illustrate the importance of Utah real estate vesting.

Jim Duncan was a 70 year old widower with 3 grown children. His 2 daughters were married and lived out of state. His son Thomas, also married, lived next to him on the family farm, which had been in the family for 5 generations. His son now handled most of the work on the farm. The farm was on the edge of a mid-size city and was worth several million dollars. Neither Jim nor his son had any interest in selling the farm, to them it was a way of life.

Thomas Duncan would be the 6th generation to own and run the farm. He would pass it on to his children, as the family had done for over 100 years. Thomas was happy when his dad decided to remarry. His new step mom was a few years younger than his father, with two grown children, which he met at the wedding.

Just 2 years later his father, and his fathers wife, were killed in a car accident. His father died at the scene, the wife died 2 days later in the hospital, without regaining consciousness. The funeral was the second time he met her children. A week later they offered to sell him the farm – for 2 million dollars! Thomas thought it was a joke. After consulting with his attorney, he learned they owned everything. Thomas was unable to pay the price and the farm was sold to someone else.

How Did This Happen?

I have seen this type of scenario happen several times. Here is what happened. When Jim Duncan remarried he transferred the farm to himself and his new wife, as “joint tenants”. Joint Tenants is the vesting (type of ownership) which allows the property to go to the owner that lives the longest; in this case the new wife.

This is the most common way of transferring property, to a married couple, and is usually the correct way. Using “Joint Tenants’ when a spouse dies, the property goes to the surviving spouse without attorneys or courts involved. Upon the death of Jim Duncan, in the car accident, the property automatically transferred to his wife. On her death, the property transferred to her heirs, as she was now the sole owner. Her heirs were her 2 children, not Tom Duncan.

The Moral of Utah Real Estate Vesting

Make sure you know the correct way to have property transferred, or the correct real estate vesting. It really does matter!

Note: The names and some details have been changed to protect the privacy of the parties involved. In this case the property should have been tenants in common.

Joint Tenancy in Real Estate. Joint Tenancy allows the real estate to transfer to the surviving owner(s) on the death of one owner. It is most commonly used between spouses but is used in other situations and between more than two people.

Tenancy in Common in Real Estate. Tenancy in Common is the standard form of vesting, allowing real estate to pass to the owner’s heirs. When a owners dies their part of the land passes to their heirs instead of the remaining owners. In contrast, Joint Tenancy passes the property to the surviving owners.

The Family Trust and Real Estate. A Family Trust, also known as a Family Living Trust or a Revocable Family Trust, is a legal entity created by a Trust Agreement to hold ownership to your personal and real property. Your attorney will create the necessary documents to establish the trust. A Trust is created for estate planning purposes.

Tag: vesting