When it comes to setting up a revocable trust, most people are primarily concerned with avoiding the time and expense associated with the probate process. To avoid probate, it is crucial that legal title to any real property is transferred to the trustee of the trust. In discussing the importance of funding the trust with real property, many clients want to know whether or not the transfer to the trust will trigger an acceleration of the debt on the property under a “due-on-sale” clause. Although the question is fairly common, the answer is not as straightforward as you might expect.

 Transfers of a Personal Residence

Under federal law, due-on-sale provisions are regulated by the Garn-St. Germain Depository Institutions Act of 1982 (Garn Act). The Garn Act, as interpreted by the Code of Federal Regulations, prevents a lender from enforcing a due-on-sale clause when a home is transferred to a revocable trust in which the borrower is a beneficiary and the home is occupied (or will be occupied) by the borrower. As far as California law is concerned, a due-on-sale clause cannot be enforced if the property transferred into the revocable trust is “residential property” and the borrower is a beneficiary of the trust. Here, “residential property” is defined as “any real property which contains at least one but not more than four housing units.” Therefore, under both federal and California law, transferring your personal residence into your revocable living trust will not trigger a due-on-sale clause.

Continue Reading Avoiding Acceleration: How to Put the Brakes on Due-on-Sale Clauses when Funding Your Revocable Living Trust with Encumbered Real Property

When it comes to heading-off potential lawsuits, one of the most powerful weapons in a trustee’s arsenal is the “notification by the trustee.” By sending this notice to beneficiaries and heirs, the trustee can cut the timeframe for filing a trust contest down to a mere 120 days. Because of this, a solid understanding of the procedural issues involved with the notification is critical for both the trustee and potential contestants.

In handling a trust contest, it is important to recognize that procedural issues in probate cases are governed by both the Probate Code and the Code of Civil Procedure. This can lead to somewhat complicated—and not always obvious—consequences. What’s more, guidance from the courts regarding the overlap of these two codes is scant. Luckily, in the past few months the Courts of Appeal have issued two opinions specifically discussing procedural issues involving the 120-day statute of limitations triggered by a trustee’s notice.

From these cases, we learn that a trust contest is “brought” at the time it is filed (not when it is served) and that the 120-day window is not extended simply because the notice is sent by mail.

The Notification:

With a typical revocable trust, the trust becomes irrevocable when the settlor dies. The trustee then has sixty days to give notice to the beneficiaries and heirs that the trust is now irrevocable. The Probate Code also requires the trustee to include the following information: (1) the identity of the settlor and date the trust was signed; (2) the trustee’s contact information; (3) the “principal place of administration” of the trust (usually the trustee’s residential or business address); (4) that the recipient is entitled to a copy of the trust; and (5) any additional information the trust requires the trustee to include. Finally, since the trust is now irrevocable because of the settlor’s death, the notice must also include the following warning (in its own paragraph and in not less than 10-point boldface font):

“You may not bring an action to contest the trust more than 120 days from the date this notification by the trustee is served upon you or 60 days from the date on which a copy of the terms of the trust is mailed or personally delivered to you during that 120-day period, whichever is later.”

Continue Reading When Applying the 120-Day Statute of Limitations Under Probate Code § 16061.8, When is a Trust Contest “Brought?”