Legal - CaliforniaProbateWills & Trust November 15, 2019

How has the TDS exemption for trust sales been changed?

The TDS exemption for trust sales no longer allows co-trustees of a revocable trust to claim the exemption. The existing law generally grants the exemption to the successor trustee of an irrevocable trust (typically, after the trustee has passed away), and generally disallows the exemption to a trustee of a revocable when that person set up the trust (and typically is still alive). But inexplicably, it grants a further exemption for co-trustees of a revocable trust simply on the basis that there is more than one trustee.

The new law aligns the exemption with common sense. When the trustor or trustors (typically the person or persons who have set the trust up) are in fact the existing trustee(s), they are not eligible for the exemption and must complete and deliver a TDS. This is the case even when there are co-trustees.

To be clear, the exemption is fairly technical. The exact language of the new exemption is as follows: “This exemption shall not apply to a sale if the trustee is a natural person who is a trustee of a revocable trust and he or she is a former owner of the property or was an occupant in possession of the property within the preceding year.” Some people interpret this language to mean that any person who has lived on the property within the preceding year is ineligible for the exemption. That is not what this means. A trustee of an irrevocable trust is still entitled to the exemption regardless of whether they have lived on the property. Mind you, they still have to disclose material facts affecting value of desirability. They just need not complete a TDS.