Multiple Choice Question: Under what circumstances is a trust not exempt from the Transfer Disclosure Statement (TDS) requirement? Pick the best answer:

A. A family trust with a trustee who is a natural person, and has personally owned or occupied the property within the last year.
B. A revocable trust with a trustee who is a natural person, and has personally occupied the property within the last year.
C. A family trust or revocable trust with a trustee who has personally owned and occupied the property within the last year.
D. A revocable trust with a trustee who is a natural person, and has personally owned or occupied the property within the last year. 

Answer: The correct answer is D. A trust is usually TDS-exempt. However, a trust is not TDS-exempt when all 3 of the following 3 conditions are met. If any of the following 3 conditions is not met, the trust is TDS-exempt, and you do not have to worry about the remaining 2 conditions. Here are the 3 conditions:

1. Revocable Trust: If the trust is a revocable trust, the first of the 3 conditions has been met. As background, a trust has 3 parties: (1) A trustor or settlor who places his or her assets into the trust; (2) A trustee who manages the trust; and (3) A beneficiary who will receive the assets usually upon the death of the trustor. The trustor is usually the original trustee. A “revocable trust” for determining TDS exemption is a trust that can generally be changed by the trustor. The word, “Revocable,” may be included in the name of the trust, or revocability may be addressed in the trust agreement itself. A “revocable trust” generally becomes “irrevocable” upon the incapacity or death of all its trustors. If a trust is an irrevocable trust, the first of the 3 conditions is not met, and the trust is TDS-exempt.

2. Natural Person: If the trustee is a natural person, the second of the 3 conditions has been met. A “natural person” is a real-live individual person. If, for example, the trustee is an LLC or corporation, the second of the 3 conditions is not met, and the trust is TDS-exempt.

3. Ownership or Occupancy Within the Last Year: If the trustee has personally owned or occupied the property within the last year, the third of the 3 conditions has been met. “Personal ownership” means that the trustee held title to the property in his or her own individual capacity within the preceding year. That occurs if, for example, John Doe created a new trust, and transferred title of his property within the last year from himself in his individual capacity over to himself as trustee of his trust. “Personal occupancy” just means that the trustee was an occupant in possession of the property within the preceding year. If a trustee has not personally owned the property within the last year, you must still figure out whether the trustee has personally occupied the property within the last year to determine whether the third of the 3 conditions has been satisfied. If a trustee has neither personally owned nor occupied the property within the last year, the third of the 3 conditions has not been met, and the trust is TDS-exempt.

-Thank you to Cathy Galvin (Del Mar Office) for suggesting this week’s legal tip!

Copyright© 2024 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of January 29, 2024. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.