Why so many California homes are in trusts
California sets probate compensation for the estate's attorney and personal representative by statute, computed on the value of the estate — and for a house, that means its value without subtracting the mortgage. Add a court process that commonly runs many months, and a revocable trust that keeps the home out of probate is close to standard practice for California homeowners. A home equity lender in California that will not lend to trusts is turning away a large share of the market, which is why the programs that do accept them treat the review as routine.
The certification statute, with teeth
Section 18100.5 lets the trustees give a lender a written certification — the trust's existence and date, the settlors, the currently acting trustees, the trustee's powers, who may revoke, how title is taken — instead of the trust. The lender may ask for excerpts that establish the trustee's authority, but the certification is designed to make the dispositive provisions unnecessary. What sets California apart is subdivision (h): a person who refuses a certification and demands the full trust can be liable for damages, including attorney's fees, if a court finds the demand was made in bad faith. That is a strong reason lenders working in California accept certifications without argument.
No reassessment, either way
Proposition 13 property taxes reset on a change in ownership, and the Revenue and Taxation Code lists what is not one. A transfer by the trustor into a trust that is revocable is excluded, as is a transfer back to the trustor; so is the creation of a security interest. That covers the trust you already have, and the new line on top of it. It also means the bank's "deed it out and back" suggestion does not create a reassessment problem in California — the reasons to avoid it are the estate-planning ones on the deed-out page.
Two trustees, one word
California loans are secured by a deed of trust rather than a mortgage, which produces a sentence that confuses everyone at signing: the trustee of your living trust signs a deed of trust naming a different trustee, usually a title or trustee company, to hold the lender's security interest. The two roles have nothing to do with each other. Your trustee signs in the trust's name; the deed-of-trust trustee only acts if the line is paid off (to reconvey) or goes unpaid.
Joint trusts and community property
Married couples in California usually hold the home in one joint trust with both spouses as co-trustees. Expect both to sign the deed of trust as trustees, and both to sign the line agreement as borrowers when both incomes or credit histories are in the file. If only one spouse borrows, the trust document and the program decide whether the other still signs as trustee — the answer is usually yes.
- California Probate Code §18100.5, certification of trust (including subdivision (h), liability for bad-faith demands for the full trust instrument)
- California Revenue and Taxation Code §62(c) and (d) — the creation of a security interest, and a transfer by the trustor into a revocable trust or back to the trustor, are not changes in ownership for reassessment
- California Probate Code §10810 — statutory compensation of the estate's attorney in probate, computed on the value of the estate
Questions trust owners ask about this
Will a HELOC trigger a property-tax reassessment in California?
No. The creation of a security interest is excluded from the definition of a change in ownership, and so is the transfer into your revocable trust.
Can a California lender require my full trust document?
Section 18100.5 lets the lender rely on a certification of trust and supporting excerpts. A person who demands the full trust in bad faith after being offered a certification can be liable for the resulting damages and attorney's fees. Some programs still review full trusts by policy.
Do both spouses sign if the home is in our joint trust?
Usually both sign the deed of trust as co-trustees. Whether both sign the line agreement depends on whose income and credit qualify the line.
Keep reading
- How a HELOC on a trust-owned home worksWho signs, what the lender reviews, and why the trust can stay exactly as it is.
- What the lender needs from your trustThe certification of trust, and why you rarely have to hand over the whole document.
- Should you deed the house out of the trust?The bank's workaround, and the problems it leaves behind.
- Successor trustees and heirsWhat changes when the person who made the trust dies or cannot act.
- For estate-planning attorneysHow we work with your client's trust, and what we will never ask them to do.