Taking Title to Real Estate in Your Trust
Perhaps the most common reason clients create a revocable trust is to hold residential real estate. But creating the trust is only the first step. To obtain the benefits of the trust, the real estate must actually be titled in the trust or conveyed to the trust after closing.
Whenever practical, we prefer that the purchase of real estate close directly in the trust rather than having the client purchase the property individually and transfer it to the trust afterward.
Your Colorado real estate professional and title company should be familiar with purchasing real estate through a revocable trust. If they are not—or if you are handling the transaction without a real estate agent—here are a few things to keep in mind.
Start With the Purchase Contract
The buyer should make the offer to purchase in the trust’s name. Colorado law specifically permits a trust to acquire and hold real estate in the trust’s name. Most trusts identify within the first few pages the name of the trust and exactly how assets should be titled.
For example, instead of identifying the buyer simply as John Doe, the contract might identify the buyer as The John Doe Revocable Trust dated October 15, 2019. The date of the trust is important because it is commonly part of the trust’s name and helps identify the particular trust involved. If there are multiple trustees, the appropriate trustees should sign the purchase contract in their capacities as trustees. Starting the transaction this way helps ensure that the title commitment, deed, loan documents, and other closing documents are prepared consistently with the intended ownership.
What If the Contract Is Already in Your Individual Name?
Do not panic. This is generally easy to correct. If the original purchase contract identifies you individually as the buyer, the contract can ordinarily be amended to reflect the trust as the buyer. If a title insurance commitment has already been issued, the title company should also be notified so that the commitment and proposed insured can be updated.
If the purchase is being financed, involve the lender before making the change. Lenders have their own underwriting requirements concerning property held in a trust, and the lender needs to approve the manner in which title will be held. Years ago, lenders sometimes resisted allowing borrowers to take title through a revocable trust. Today, many residential lenders routinely deal with revocable trusts. Nevertheless, do not assume that a particular lender will permit it or wait until the day of closing to find out.
At the Closing
The closing should be straightforward. The title company will prepare the deed and other closing documents to reflect the agreed form of ownership. In Colorado, a Statement of Authority is also commonly recorded in connection with real estate owned through a trust. The Statement of Authority provides public notice of the existence of the trust and identifies the person or persons authorized to act on its behalf with respect to the real estate. If the title company does not prepare a Statement of Authority, contact the attorney who prepared your trust. You may already have a Statement of Authority in your estate planning binder, but an older document may not satisfy the title company’s or lender’s requirements.
Don’t Forget the Insurance
Finally, notify your property insurance company that title to the real estate will be held through your trust. Do not assume that transferring the property into a trust automatically updates the insurance policy. Ask your insurance agent or carrier how the trust and trustees should be identified on the policy so that the ownership of the property and the insurance coverage are properly coordinated.
A Little Planning Makes the Closing Easier
If you intend to purchase real estate through your trust, let everyone involved know early in the transaction. A few minutes of coordination at the beginning can avoid unnecessary documents, delays, and expense at the closing—or the need to transfer the property into the trust afterward.