September 7th, 2011 at 11:44 pm
First, the general rule is that a TDS is not required when the seller of property is a trust. Specifically, Civil Code section 1102.2 states that the TDS law does not apply to the following: “(d) Transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.” So, in the normal course, your seller/trustee does not have to prepare a TDS. However, that rule has an exception. The statute above states that “[t]his exemption shall not apply to a transfer if the trustee is a natural person who is the sole trustee of a revocable trust and he or she is a former owner of the property or an occupant in possession of the property within the preceding year.” So, what does that mean? It means that if your seller is a trust, before you can tell the trustee that no TDS is required, you have to ask the following questions:
(1) Is the trustee a natural person?
(2) Is the trustee the sole trustee of the trust?
(3) Is the trust that owns the property a revocable trust?
(4) Is the trustee a former owner of the property or an occupant in possession of the property within the preceding year?
If the answer to all of these questions is “yes,” then the normal exemption does not apply and a TDS is required. The policy behind this rule makes sense. After all, a TDS is only required if the trust’s ownership of the property does not change the fact that the person representing the seller should know about the property’s condition. The law provides that this exemption does not apply when the circumstances are such that the trust’s representative is likely to have material facts about the property. This rule is consistent with the general policy that a buyer should be given all such material facts. So, if you represent a trust, remember that they normally do not owe the buyer a TDS. However, you should also remember that this rule is not universal. Rather, you need to ask the four questions above to determine if the normal exemption applies.
As always, feel free to contact us with any questions you may have.
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