California Living Trust Transfers That Invalidate Your Title Insurance Policy

We all need California Living Trusts. They are the best way to avoid probate. Probate is that expensive attorney-fee intensive process you must endure if you don’t have a living trust in California. In fact, Probate can cost over 10% on just your house alone (around $23,000 on a $200,000 home). And with high home values in California, the average home costs around $37,000 in Probate Fees.

When using a living trust in California; however, the trust must be funded. This means we transfer title from ourselves into the Living Trust using a deed. Whether it’s a grant deed or quitclaim deed, it usually goes something like this:

Grantor: Joe Smith, an Unmarried Person

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

This is called a voluntary transfer, but on certain title policies, they may drop you, resulting in a loss of coverage.

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

It’s likely that many property owners don’t even realize their property is affected.

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

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

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

So the takeaway here is to ensure your title policy is still intact after a voluntary transfer of title from a person to a California revocable living trust.

What’s the big deal with the Title Policy anyway?

The title policy is what insures you have clear title and you will need it when you go to sell the property. For instance, fast forward, five years later. You are selling this very home and it’s in escrow. The title company mutually selected by the parties to the real estate sales contract says there’s a problem. This is the beginning of a very long and involved process to cure the defect. And the chances are it will be more than just transferring title back the person prior to the trust because that will be another voluntary transfer.

Many people simply toss that title policy into the real estate purchase folder and forget about it. But now is the time to get it out, dust it off, and check for the voluntary transfer exclusion clause.