“A trust is any arrangement which exists whereby property is transferred with an intention that it be held and administered by the transferee for the benefit of another.” (Higgins v. Higgins (2017) 11 Cal.App.5th 648, 662.) Essentially, a trust is a legal relationship that allows a person to hold property for the benefit of another person.
In a trust relationship, there are typically three main people involved: (1) the settlor; (2) the trustee; and (3) the beneficiary. The settlor is the person that creates the trust and transfers the property he/she owns in the trust to be held by the trustee. The trustee is the person that administers the trust. The trustee holds legal title to the property transferred into the trust by the settlor and acts as a fiduciary to the beneficiary to protect the assets in the trust. The beneficiary holds equitable title to the trust property and is the person that benefits from the property in the trust. In some cases, the settlor and the trustee are the same person.
In sum, a trust is a fiduciary relationship where property is transferred by one person to another on behalf of a third party. At the Underwood Law Firm, our attorneys are more than familiar with trusts and the requirements that follow.
Is a Trust a Legal Entity?
In California, a corporation is a legal entity. Therefore, in the eyes of the law, a corporation is considered to be a natural person capable of holding title to property and suing other entities or individuals.
As opposed to corporations, a trust is not a legal entity. (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 522.) As such, a trust itself is not capable of suing, being sued, or holding title to the property. (Id.) This is because a trust is considered to be merely a collection of property and assets and not its own legal person. (Id.)
Who Holds Title to Trust Property
Given that a trust is not considered to be a separate legal entity, a trust is incapable of holding title to real property. Instead, the trustee of the trust is the one who holds legal title to the property in the trust. (Boshernitsan v. Bach (2021 61 Cal.App.5th 883.)
Boshernitsan is a 2021 unlawful detainer action in which Plaintiff sought to evict the tenants. There, the Plaintiffs were the owners of a two-unit building in San Francisco. (Id. at 888.) In 2018, the Plaintiffs transferred title to the two-unit building to a trust, with the Plaintiffs as trustees of the trust. (Id.) One year later, the Plaintiffs gave notice to the tenants of their intent to evict the tenants; however, the tenants refused to leave. (Id.) In turn, the Plaintiffs filed an unlawful detainer action claiming that they hold title to the two-unit building as the trustees of the trust. (Id.)
In the trial court, the tenants demurred on the basis that the Plaintiffs are not the landlords of the building under Rule 12.14(a) because the title to the building is held by the trust. (Id.) The trial court sustained the demurrer and entered a judgment in favor of the tenants, stating that the two-unit building was owned by the trust itself and not a natural person. (Id., at 889.)
The Court of Appeals reversed the trial court’s holding. The Court of Appeals held that the Plaintiffs, as trustees of the trust, held title to the two-unit building, not the trust, and that the Plaintiffs, as trustees, qualify as landlords under Rule 12.14(a). (Id.)
The Court reasoned that the law of trusts confirms that trusts do not themselves hold title to the property because a trust is a fiduciary relationship with respect to the property, not a legal entity. (Id., at 891.) Further, the Court found that the Plaintiffs fit under the definition of “landlord” provided by Rule 12.14(a) because the Plaintiffs qualify as a “group of natural persons” eligible to be landlords under Rent Ordinance, section 37.9, subdivision (a)(8).
“Shawn” is the owner of a beautiful two-story ocean-side house in San Diego, California, that he bought before he got married. For years, Shawn had been living in the house with his wife and kids. However, recently, Shawn’s wife decided to leave him, and his kids moved out to go to college out of state. Now, the pain of staying in the house without his wife is too much for Shawn to bear, so he decides to rent the house out. Before finding a tenant, Shawn transferred the house to a trust for the benefit of his kids. Shawn is both the settlor and the trustee of the trust.
Shawn then set out to find a suitable tenant. After months of interviewing people, he met “Julie.” Julie is a highly-responsible CPA who always wanted to live by the beach. Shawn and Julie sign a lease, and Julie moves into the house. However, after a few months, Shawn discovers that Julie is not highly-responsible at all. She is a hoarder who is dating an ex-criminal who just got out of prison. Julie ends up being late on several of her rent payments. Also, her boyfriend and her get into extremely tense fights, and each takes their rage out on the house, breaking doors, punching windows, etc.
Shawn demands Julie leave the house, but Julie refuses. Shawn then brought an unlawful detainer action against Julie. Julie filed a motion to dismiss the action, arguing that Shawn had no standing to sue because the trust holds title to the house, not the trustee, and therefore Shawn had no standing to sue. Here, Julie is wrong. A trustee is not a legal person. Therefore, a trust is incapable of holding title to the property. Instead, the trustee is the one that holds legal title to the property in the trust. Thus, the court will deny the motion to dismiss.
How Can the Attorneys at Underwood Law Assist You?
A trust is a fiduciary relationship where one person transfers property to another for the benefit of a third party. Unlike a corporation, a trust is not a legal entity. Therefore, a trust has no capacity to sue, be sued, or hold title to the property. As such, a trustee holds legal title to real property held in a trust.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of trusts and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to transfer your property to a trust, are worried about your ability to sue on behalf of your property held in a trust, or if you just have questions, please do not hesitate to contact our office.
Learn more here.