Trusts: Irrevocable and Revocable

 1. Transfer of Property to Trust

Generally, a transfer of real property from trustor A into a trust is a change of ownership at the time of the transfer. Rev & T C §62(d)(1); 18 Cal Code Regs §462.160(b)(1).

2. Transfer of Property to Irrevocable Trust

Transfer of real property to an irrevocable trust in which trustor A is the sole present beneficiary is not a change in ownership. However, a similar transfer by trustor A to a trust naming A and B as beneficiaries would require reappraisal of the property to the extent that B is a beneficiary. Rev & T C §62(d)(1); 18 Cal Code Regs §462.160(b)(1).

3. Third Party Beneficiary

A transfer of property from A to C as trustee under a trust naming B as the sole beneficiary triggers reappraisal of the interest transferred to B. Rev & T C §§60, 61(h); 18 Cal Code Regs §462.160(a).

4. Reversion of Beneficial Interest Within 12 Years

The transfer of property from A to a trust for the benefit of B for a term of 12 years or less with a subsequent reversion to A will not require reappraisal of the property at either creation or termination of B’s beneficial interest. The beneficial interest transferred must exceed a term of 12 years to be deemed a change in ownership. Rev & T C §62(d); 18 Cal Code Regs §462.160(d)(3).

NOTE: A person who holds a beneficial interest to a property (i.e., the beneficial owner), as opposed to legal title, has the right to possess and use the property to the exclusion of all others. Mayhew Tech Ctr., Phase II v County of Sacramento (1992) 4 CA4th 497, 505.

5. Assignment of Beneficial Interest

When A, as beneficiary of a trust owning real property, assigns his or her beneficial interest to B, reappraisal of the property is triggered if the beneficial interest reverts back to A after a term exceeding 12 years. Rev & T C §60; 18 Cal Code Regs §462.001.

There is no reappraisal based on transfer of a future beneficial interest to B. Rev & T C §60; 18 Cal Code Regs §462.001. In that case, the property is reappraised at the time that B receives the interest in the property. Rev & T C §63; 18 Cal Code Regs §462.220.

6. Income Beneficiaries With Remainder

In a transfer of property from A to B as trustee of a trust naming A and C as income beneficiaries with a remainder to D, a reappraisal is triggered to the extent that C and D are present beneficiaries of the trust. Rev & T C §62(d)(1); 18 Cal Code Regs §462.160(b)(1). A is not the sole beneficiary of the trust.

EXAMPLE 1: Should A die, then A’s interest in the property is reappraised. Rev & T C §61(g); 18 Cal Code Regs §462.160(c).

EXAMPLE 2: If A and C die and the property goes to D, then the property is reappraised. Rev & T C §61(g); 18 Cal Code Regs §462.160(c). The interspousal exception will apply only if D is A’s spouse. Rev & T C §63; 18 Cal Code Regs §§462.160(b)(3), 462.220.

7. Transfer From Joint Tenants to Irrevocable Trust

No reappraisal is triggered following a transfer of real property from A and B as joint tenants to A and B as trustees and life beneficiaries of an irrevocable trust, with a remainder to C. The transfer does not involve a transfer of a present interest or beneficial use. Rev & T C §62(d)(1); 18 Cal Code Regs §462.160(b)(1). The property will be reappraised after the deaths of both A and B, as there is then a termination of the precedent interest when the right of possession vests in C. Rev & T C §61(g); 18 Cal Code Regs §462.160(c).

8. Transfer of Property to Revocable Trust

When A is both the transferor of property to a revocable trust and the trustor, there is no reappraisal of the property triggered. Rev & T C §62(d)(2); 18 Cal Code Regs §462.160(b)(2). If and when the trust becomes irrevocable (e.g., on the death of A), a reappraisal is triggered. Rev & T C §61(h); 18 Cal Code Regs §462.160(b)(2).

                a. Revocable Trust Involving Spouses

When spouses create a revocable trust and transfer real property into it, naming themselves as trustees and life beneficiaries, and granting a remainder to C, no reappraisal of the property is triggered because there has not been a transfer of a present interest or beneficial use of the property. Rev & T C §§60, 62(d); 18 Cal Code Regs §462.160(b)(2).

EXAMPLE 1: If both spouses revoke the trust, then again there is no reappraisal required, because no present interest or beneficial use has been transferred. The property is still held by both spouses. Rev & T C §§60, 62(d); 18 Cal Code Regs §462.160(d)(2).

EXAMPLE 2: If both spouses die without revoking the trust and the property transfers to C, then the reappraisal is triggered. The termination of the spouses’ precedent interest and the vesting of the right of possession in C are a change in ownership. Rev & T C §61(g); 18 Cal Code Regs §462.160(c).

EXAMPLE 3: If one spouse dies and then the other spouse revokes the trust, no reappraisal is warranted because there is no present interest transferred. Rev & T C §62(d); 18 Cal Code Regs §462.160(d)(2).

EXAMPLE 4: If one spouse dies and remainderman C dies prior to the surviving spouse, with the surviving spouse as sole heir of both, reappraisal of the property is not triggered. If the remainderman predeceases the surviving spouse, the present interest remains in the surviving spouse as life beneficiary. Rev & T C §60; 18 Cal Code Regs §462.160(d)(1).