California living trust transfers that invalidate your title insurance policy

We all need California living trusts. They are the best way to avoid succession. Probate is that costly, fee-intensive process that you must endure if you don’t have a California living trust. In fact, probate can cost more than 10% on your home alone (about $ 23,000 on a $ 200,000 home). And with high home values ​​in California, the average home costs about $ 37,000 in Probate Tax.

When using a living trust in California; however, the trust must be funded. This means that we transfer title from ourselves to the living trust through a deed. Whether it’s a deed of concession or a deed of resignation, it usually goes something like this:

Grantor: Joe Smith, a single person

Beneficiary: Joe Smith, Trustee, Joe Smith Family Living Trust

This is called a voluntary transfer, but on certain title policies, it may be removed, resulting in a loss of coverage.

This is because the Court determined that a voluntary transfer occurs when title is transferred by individuals, as in the example above, as trustees of their revocable living trusts.

Many homeowners may not even realize that their property is affected.

There is a way to find out. Unfortunately, each title policy has its own unique provisions. These issues are primarily found in the policies of the American Land Title Association (ALTA) and the California Land Title Association (CLTA).

ALTA policies dating from 1970, 1987, 1990, and 1992 exclude voluntary transfers, as does the 1990 CLTA Standard Coverage Policy.

These policies specifically EXCLUDE voluntary transfers. There are others too, you just have to check it out.

So the bottom line here is to make sure your title policy is still intact after a voluntary transfer of title from a person to a California revocable living trust.

What’s the problem with the Title Policy anyway?

The title policy is what ensures you have a clean title and will need it when you go to sell the property. For example, fast forward, five years later. You are selling this very house and it is under warranty. The title company mutually selected by the parties to the real estate sales contract says there is a problem. This is the beginning of a very long and complicated process to heal the defect. And it will most likely be more than just transferring the title to the person before the trust because it will be another voluntary transfer.

Many people just toss that title policy into their real estate portfolio and forget about it. But now is the time to get it out, dust it off, and check the opt-out clause for voluntary transfer.