ENSURING THE SAFETY OF TRUST PROPERTY TRANSFERS
Whether creating a trust to avoid the hassle of probate court or to maintain an influence over assets, it is important to confirm that your property is transferred correctly. A recent decision in the U.S. District Court for the Southern District of Texas struck down a conveyance of real property from an LLC to a trust on the grounds that the trustee should instead have been transferred the property on behalf of the trust. Because a trust is not a separate legal entity capable of holding or owning property, Texas law prevents deeding property to a trust, and any such attempt will be found void.
A deed of property which is found void does not pass title of the property and cannot be enforced even if recorded with the appropriate authority. Although the voided transfer of property essentially never legally occurred, this can lead to lawsuits between parties purporting to have the superior title to the property. Even without a dispute over the property title between adverse parties, the deed must be recreated, passing the property to a valid grantee such as a trustee acting on behalf of a trust.
To prevent the unnecessary inconvenience of dealing with the legal ramifications surrounding a mistaken conveyance of property to a trust, one should make certain that property is transferred to the trustee, not the trust. Trust property must be passed to the trustee who holds the legal title to the property for the benefit of those indicated in the trust. Then, once the conditions in the trust are met, property can be rightfully distributed from the trustee to your beneficiaries.
If a trustee who was given legal title to trust property becomes incapacitated or otherwise unable to serve in that role, corrections to the deed transferring the property can be made. This cannot be done when property is incorrectly deeded to the trust itself. Changing the trustee with legal right to the property requires the parties to the original instrument of conveyance, with the successor trustee in place of the incapacitated trustee, to execute a correction document and for the document to be recorded in the county where the original instrument was recorded.
Contact our office to speak with one of our experienced estate planning attorneys to insure your trust operates smoothly and stress-free for your beneficiaries.