A trust is a great way to determine what happens to your property after death and ensure that it is distributed the way you intended. This also applied to real property. If the real property is a house, that may create disputes over how it is divided, especially if your trust grants an interest in the house to multiple people.

What is a trust?

A trust allows property to be transferred with an intermediary holding the property in trust or for the benefit of another person. (Higgins v. Higgins (2017) 11 Cal.App.5th 648, 662.) A trust is created by a trustor or grantor who wants to predetermine how their assets will be managed and distributed. This can be during their lifetime or after death. (Cal. Prob. Code § 15401.) The trustor can modify, terminate, or revoke the trust before their death, which makes the trust revocable before their death. A trust is created by a trust instrument which is a document usually held by the trustee. A trustee is the person who will administer the trust ensuring its assets are distributed properly and promptly. These assets are distributed to beneficiaries.

How does a trust work after death?

After a trust’s creator dies the trustee distributes trust assets to beneficiaries. A trustee has a duty to keep the beneficiaries of the trust reasonably informed of the trust and its administration. (Cal. Prob. Code § 16060.) Trustees must give written notice to trust beneficiaries and the grantor’s heirs that trust administration will start within 60 days from the grantor’s date of death or 60 days from the date they took over as trustee. (Cal. Prob. Code § 16061.7.) Trust assets need to be accounted for and valued. Beneficiaries must be notified by the trustee when a revocable trust becomes irrevocable due to the death of a settlor or if there is a change in trustee of an irrevocable trust. (Cal. Prob. Code § 16061.7(a)(1)-(2).)

What ensures the trustee distributes property correctly?

The trustee has a duty of loyalty not to engage in self-dealing which would mean administering the trust for their own benefit. (Copley v. Copley (1981) 126 Cal.App.3d 248, 278-279.) This means, they must adhere to the trust instrument which is why creating one is of the utmost importance for the trustor’s intent to be preserved.

Because of this duty to the beneficiaries, the beneficiaries have the right to inspect any of the trustee’s records related to their interest in the property. (Strauss v. Superior Court In and For Los Angeles County (1950) 36 Cal.2d 396, 401-402.) If the beneficiary asks, they can also obtain an account of all transactions, especially disbursements from the trust. (Purdy v. Johnson (1917) 174 Cal. 521, 527.) At a minimum the trustee must account to each beneficiary annually, at the termination of the trust or if the trustee changes. (Cal. Prob. Code § 16062, subd. (a).)

If a trustee disagrees with the need for an accounting or has a misunderstanding with a beneficiary about the trust instrument the trustee’s interest is presumed adverse and to not be representing the beneficiaries’ interests. (Donkin v. Donkin (2020) 47 Cal.App.5th 469, 473-474.) These presumptions will apply if the trustee does not account or refuses to account. (Blackmon v. Hale (1970) 1 Cal.3d 548, 560-561.)

What happens when a trust requires distribution to multiple beneficiaries?

Often, a trust requires distribution of the property (in this case, a house) to multiple beneficiaries. When interests, or ownership percentages, can be determined one owner may begin a partition action. Partition statutes have been broadened so any beneficiary or trustee could file a partition action if it was in the best interest of all the parties. (C.C.P. § 872.710(c).) Often it would just be a beneficiary beginning the action following the property’s distribution from the trust.

Unfortunately, after a house is distributed to multiple beneficiaries, disputes often arise as to what should be done with the Property. For example, one beneficiary may wish to continue to live in the Property, while another wishes to sell it. Once the Property is distributed to multiple owners, each owner has the absolute right to file a partition action, which can lead to either a buy-out or a sale of the Property.

What is an example of this?

For example, Julie and Shawn are siblings who were designated as beneficiaries to their mother’s trust. Their mother Martha placed her home in trust for them. Upon Martha’s death, the trustee of that trust must notify Julie and Shawn that the trust will be disbursed. This also informs Julie and Shawn of their respective interest in the property. Upon disbursement, the legal title in the home would pass from the trustee to Julie and Shawn in their respective ownership percentages.

If Shawn or Julie wanted to contest their ownership percentages, they could do so upon notification that the trust would be distributed. If the trustee was trying to keep some of the property for themselves or improperly give the entire home to Julie contrary to the trust instrument, Shawn could bring an action against the trustee for violation of their duty of loyalty.

If Shawn and Julie could not agree on what to do with the property following distribution either of them could begin a partition action. Alternatively, if Shawn and Julie were unable to agree and it was in everyone’s best interest the trustee could also initiate a partition action.

Conclusion

Real property may be part of a trust that you are a trustee or beneficiary for. Because property interests can be granted to more than one person, this may cause disputes over ownership and title. If trust property is a point of contention, partition may be a solution. At Underwood Law, our partition attorneys can help you navigate your partition action efficiently and with care. We are here to help.