Deeding Your Real Estate To Your Living Trust

THIS ARTICLE DOES NOT APPLY TO ANY CLTA/ALTA HOMEOWNER’S POLICY OF TITLE INSURANCE FROM 1998 TO THE PRESENT

DEEDING YOUR REAL ESTATE TO YOUR LIVING TRUST MIGHT HAVE VOIDED YOUR TITLE INSURANCE

In Kwok v. Transnation Title Insurance Company, Mr. and Mrs. Kwok formed an LLC, which purchased real property in Los Angeles. Transnation Title Insurance Company issued a “CLTA Standard Coverage Policy of Title Insurance” naming the LLC as the insured. When Mr. and Mrs. Kwok realized that the LLC would not make business sense, they decided to move into the property. They then signed a Grant Deed transferring title from the LLC to themselves as Trustees of their Revocable Living Trust. Then, they filed a Certification of Dissolution of the LLC. Subsequently, an easement dispute arose with their neighbors that ultimately resulted in a lawsuit. They tendered a claim to Transnation Title Insurance Company who denied coverage on the grounds that the transfer of property from the LLC to Mr. and Mrs. Kwok as Trustees of their Revocable Trust “was a voluntary act that did not arise by operation of law which terminated coverage pursuant to the policy’s terms“.

The trial court ruled in favor of Transnation Title Insurance Company. The court ruled that the property was voluntarily transferred by Grant Deed from the LLC to the Kwoks as Trustees of their Revocable Trust, rather than to them individually as owners of the LLC. Therefore, they did not become insured by “operation of law” as required under the terms of the policy.

The Court of Appeals upheld the trial court’s decision.

This office has had clients in unrelated matters tender claims to their title insurance company and the insurance companies have denied coverage based upon the transfer to Trust, relying on the Kwok vs. Transnation Title Insurance Company case. The State Bar of California Trusts and Estates Section Executive Committee (“TEXCOM”) sought to clarify this ambiguity through a legislative proposal. The proposal would have, by statute, confirmed that a title insurance policy continues coverage to the transferee when title is transferred to a trustee of the insured’s revocable trust.

Assembly member Steve Fox agreed to sponsor TEXCOM’s bill in 2013 as Assembly Bill 2196. However, the bill was quickly opposed by the California Land Title Association (“CLTA”). Eventually, after much negotiation, Assembly member Fox agreed to withdraw Assembly Bill 2196 in exchange for CLTA’s amendment of the standard form of policy at issue in Kwok (CLTA Standard Coverage Policy) to include language extending coverage where the insured has transferred the subject real property to his or her revocable living trust. The amended CLTA Standard Coverage Policy 1990 became effective as to policies issued on or after May 18, 2014. As such, any real property acquired after May 18, 2014, will not lose title insurance coverage under the CLTA Standard Coverage Policy 1990 upon transfer by deed to a revocable living trust.

The logic that is being applied by title insurance companies is a stretch of the Kwok case. In Kwok, an LLC transferred title to a Revocable Trust. Had the LLC dissolved, transferring the property to the owner of the LLC, who then transferred the property to their Revocable Living Trust, there would have been little or nothing to dispute. However, this was a transfer from an LLC directly to a Revocable Living Trust. In the thousands of cases in which this office has assisted clients, the client, who has title insurance, transfers property to a Revocable Trust of which they are the Trustor, the Trustee and the beneficiary. They reserve the right to revoke the Trust. California law is abundantly clear that if they got sued, the property still belongs to them.

Before you call our office in a panic about the fact that you have lost title insurance, please follow some basic steps:

1. It is highly unlikely that there is a defect in your title that would ever require a claim against your title insurance;

2. Only certain policies have problems. Pull your title insurance (or call your title insurance company) and determine what kind of title insurance you have:

A. If you have an ALTA Owner’s Policy 1970, 1987, 1992 and 1990, the definition of “insured” is the insured named in Schedule A and those who succeed to the interest by operation of law, as distinguished from purchase. These policies do not extend coverage to transferees of voluntary transfers. A transfer of property by an owner to himself or herself as Trustee of his or her Revocable Trust is a voluntary act and does not rise by operation of law. Thus, these policies do not extend coverage to transfers of a Trust;

B. CLTA Standard Coverage Policy 1190 was the policy in Kwok. Under that policy, the definition of “insured” is the same as in the above ALTA Owner’s Policy 1970, 1987, 1992 and 1990. There does not appear to be coverage under this type of policy;

C. ALTA Residential Title Insurance Policy 1979 and 1987 does not define “insured”. This policy does protect you as long as you own your title or own a mortgage from anyone who buys your land or are liable for any title warranty you make. This type of policy is ambiguous under Kwok.

D. If you own a CLTA/ALTA Homeowner’s Policy of Title Insurance 1998 to present, this policy provides that it insures:

– Anyone who inherits your title because of your death;

– Your spouse who receives your title because of dissolution of your marriage;

The Trustee or Successor Trustee of a Trust to whom you transfer your title after the policy date; or,

The beneficiaries of your Trust upon your death.

If you have a CLTA/ALTA Homeowner’s Policy of Title Insurance from 1998 to the present you do not have anything to worry about.

E. ALTA Owner’s Policy 2006 to present. This defines “insured” as the insured named in Schedule A. It further provides that “insured” includes:

-Successors to the title of the insured by operation of law as distinguished from purchase;

-A Grantee of an insured under a Deed delivered without payment of an actual valuable consideration conveying title; and,

If the Grantee is a Trustee or beneficiary of a Trust created by a written instrument established by the insured in Schedule A for Estate Planning purposes.

If you have a CLTA/ALTA Homeowner’s Policy of Title Insurance from 1998 to the present you do not have anything to worry about.

If your policy is not D or E above, or you acquired your real property prior to May 18, 2014, we recommend you contact your title insurance company and seek an endorsement to add the Trustee of your Trust as an additional insured to the policy. Endorsements are generally not expensive, but you must deal with the inconvenience of contacting your title insurance company to obtain it. The CLTA has a specific form of endorsement called CLTA 107.9 Endorsement that extends policy coverage for Trust transfers. This will generally be done by your title company for either no-charge or a nominal charge ($50 – $200).

In conclusion, the likelihood that you would ever have a claim against your title insurance is nominal; however, it is prudent for you to verify that you either have a CLTA / ALTA Homeowner’s Policy of Title Insurance from 1998 to the present or an ALTA Owner’s Policy 2006 to the present.

If you have any questions whatsoever, you must call your title insurance company and get a written confirmation that a transfer to your Trust is covered or request a CLTA 107.9 Endorsement. We cannot advise you on this as part of our flat fee for Estate Plans. Only your title company can advise you. Should you require our assistance, it will be billed at our normal hourly rate.

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