assignment vs trust

Deed Of Trust: What It Is And How It Works

Updated: Mar 2, 2023, 3:15am

Buying property usually comes with an avalanche of paperwork. It can be a confusing process, especially when it comes to knowing the difference between the various documents you sign. If there’s one contract that’s important to understand, however, it’s the deed of trust.

Depending on your lender and the state you live in, you may or may not need a deed of trust when financing a home purchase. Here’s what you should know about this contract and how it differs from a mortgage .

What Is a Deed Of Trust?

When you finance the purchase of a property, you will sign either a mortgage or deed of trust—but not both. You can take out a mortgage in all 50 U.S. states, while a deed of trust is only available in some states.

A deed of trust is a legal document that secures a real estate transaction. It works similarly to a mortgage, though it’s not quite the same thing. Essentially, it states that a designated third party holds legal title to your property until you’ve paid it off according to the terms of your loan. Deeds of trust are recorded in public records just like a mortgage.

How Does a Deed of Trust Work?

A deed of trust exists so that the lender has some recourse if you don’t pay your loan as agreed. There are three parties involved in a deed of trust: the trustor, the beneficiary and the trustee.

The three parties involved in a deed of trust for a real estate transaction are a:

• Trustor. This is the person whose assets are being held in the trust, also known as the borrower (i.e., you). The title to your home is held by the trust until the loan is paid off. Even so, you remain the equitable owner as long as you keep paying the loan according to the terms outlined in the deed of trust. That means you enjoy all the benefits of being the homeowner, such as the right to live there and gain equity, even though you aren’t the legal title holder.
• Beneficiary. The beneficiary is the party whose investment interest is being protected. Usually, that’s the lender, though it also can be an individual with whom you have a contract.
• Trustee. The trustee holds the legal title of the property while you’re making payments on the loan. Trustees often are title companies, but not always. Once you’ve paid off your loan, the trustee is responsible for dissolving the trust and transferring the title to you.

If you sell the property before it’s paid off, the trustee will use proceeds of the sale to pay the lender the remaining balance (you keep the profits). If you fail to meet your payment obligations and default on the mortgage, the property would go into foreclosure , and the trustee would be responsible for selling the property.

What Is Included in a Deed of Trust

A deed of trust includes many important details about your property, loan and related terms and conditions—much of the same information you would find in your mortgage. Typically, you’ll find the following outlined in a deed of trust:

• The names of the parties involved (the trustee, trustor and beneficiary)
• The original loan amount and repayment terms
• A legal description of the property
• The inception and maturity dates of the loan
• Various clauses, such as acceleration and alienation clauses
• Any riders regarding the clauses outlined

It’s common for a deed of trust to include acceleration and alienation clauses. If you’re delinquent on your loan, it can trigger the acceleration clause—essentially a demand for immediate repayment of the loan. Depending on the terms, this can happen after missing just one payment, though lenders often give a few months of leeway to allow the borrower to catch up on payments. If you fail to do so under the terms outlined in the acceleration clause, the next step is formal foreclosure proceedings.

An alienation clause is also known as a due-on-sale clause and it prevents anyone who buys the property to take on the loan under its current terms. Instead, the alienation clause would dictate that the loan must be paid in full if you sell the property.

Depending on your state, the deed of trust may also include a power of sales clause. This allows for a much faster foreclosure process than if your lender had to involve the state courts in a judicial foreclosure. That said, you won’t be foreclosed on overnight under a power of sales clause; the exact process differs by state and lender. Still, if you’re facing a nonjudicial foreclosure, it can happen in a matter of months. If you want to formally fight the foreclosure, you’ll need to hire a lawyer.

States that allow power of sale foreclosures include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming.

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Deed of Trust Vs. Mortgage

The terms “deed of trust” and “mortgage” are often used interchangeably, but they’re really two different things. That said, there are also some similarities. To review, here are the key ways a mortgage and deed of trust are similar as well as different.

Similarities

• Public record: Both documents are recorded with the county clerk.
• Subject to state law: The exact terms of a mortgage or a deed of trust depend on the local state law.
• Contracts, not loans: Neither document serves as the actual loan agreement; a deed of trust or mortgage is a contract that places a lien on your property and dictates how your lender can repossess the property through foreclosure.

Differences

• Parties involved: A mortgage is an agreement between a borrower and lender, while a deed of trust involves a trustor, beneficiary and trustee.
• Foreclosure type: A mortgage requires a judicial foreclosure, while a deed of trust allows for a nonjudicial foreclosure.
• Foreclosure timeline: Judicial foreclosure on a mortgage can be a lengthy process, while nonjudicial foreclosure through a deed of trust is much faster.

What’s the Advantage of a Trust Deed Over a Mortgage?

If the borrower defaults, a trust deed makes it possible for the lender to sell the property without having to go to court. With a mortgage, the lender has to file a foreclosure claim in court and secure a judge’s approval to sell the property. This can mean a lot of expenses for both the borrower and the lender.

If you are investing in a real estate project, a trust deed also has a few advantages over a mortgage. This is because the investor is considered the lender in the transaction, and their name is recorded on the trust deed as such. The investor can receive interest on their “loan” and the principal is repaid in full once the property has been built.

Warranty Deed Vs. Deed of Trust

Both a warranty deed and deed of trust are used to transfer the title of a property from one person to another. However, the difference between these two contracts is who is protected. As you now know, a deed of trust protects the beneficiary (lender). A warranty deed, on the other hand, protects the property owner.

When a property title is transferred with a warranty deed, ownership goes from the seller (also known as the grantor) to the buyer (also known as the grantee). The warranty deed guarantees that the previous owners, or grantor, had full ownership of the property and right to transfer it. In other words, it promises that you won’t inherit any liens or future claims against the property. It provides peace of mind that you own the property outright once the title is in your name.

Are Trust Deeds a Good Idea?

Trust deeds could be a good idea if you are an investor searching for options to earn passive income, while also being protected via the deed. However, investing in real estate is unpredictable and returns are never guaranteed. A trust deed does not reduce the probability of default or ensure that you will recoup your initial investment.

Consult with a financial advisor or investment professional before going down this route.

Personal finance writer Casey Bond contributed to this article.

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Frequently Asked Questions (FAQs)

What is an assignment of deed of trust.

An assignment of trust deed is necessary if a lender sells a loan secured by a trust deed. It assigns the trust deed to whoever buys the loan (such as another lender), granting them all the rights to the property. It is recorded along with the original, making it a matter of public record.

What happens with the deed of trust after you pay off your mortgage?

Once you pay off your loan, the trustee is responsible for releasing the trust and transferring the title to you. You now have full ownership of the home.

Can you sell a house with a deed of trust?

Yes, you can. However, if you are selling the house for less than the loan amount, you will need the lender’s approval. Once the property is sold, the trustee uses the proceeds to pay the lender what they are still owed. The borrower then gets any money that is left over.

How long does a deed of trust last?

A deed of trust, like a mortgage, typically has a maturity date, which is when the loan must be paid off in full. That date will vary transaction to transaction. Sometimes a deed of trust won’t have a maturity date. In this scenario, state law dictates the number of years a deed of trust lasts, anywhere from 10 to 60 years after it was recorded.

What is a purchase money deed of trust?

A purchase money deed of trust secures the funds used to buy the property. It also gives the buyer priority over any liens or encumbrances against them

Does a deed of trust show ownership?

No. A deed of trust is a legal document that secures a real estate transaction. It only shows that a designated third party holds legal title—i.e. ownership—to your property until you’ve paid it off, according to the terms of your loan.

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Deed of Trust: Definition, Uses

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Table of Contents

Deeds of trust vs. mortgages

How does a deed of trust work, deed of trust by state, deeds of trust vs. warranty deeds.

A deed of trust is a real estate transaction agreement that allows a third-party trustee to hold the property title until the borrower repays the lender in full. The third party in a deed of trust is typically a title company or real estate broker [0] Cornell Law School Legal Information Institute . Deed of Trust . Accessed Jun 1, 2023. View all sources .

Over half of states use deeds of trust instead of mortgages , which involve only two parties. However, in many states, home loans are colloquially referred to as “mortgages,” although they may legally be deeds of trust.

The main difference between a mortgage and a deed of trust is that if you fall behind on loan payments, the property can be foreclosed on more quickly with a deed of trust than with a mortgage.

A deed of trust is not to be confused with a living trust , which is an estate planning tool that helps avoid probate. It also doesn’t transfer ownership of the real property as a property deed does.

Deeds of trust and mortgages are lending agreements that place a lien, or legal claim until debt repayment, on real property. Here’s how they’re similar:

They’re subject to state laws.

Both are public record.

Both allow for foreclosure.

Both are considered contracts as opposed to loans.

However, there are two key differences:

Number of parties involved. A mortgage involves two parties: the lender and the borrower, while a deed of trust involves three parties: the lender, the borrower and the trustee.

Foreclosure type and time. Mortgages typically have to go through a judicial foreclosure, while deeds of trust generally can use a nonjudicial foreclosure process without involving the courts. Because a nonjudicial foreclosure process tends to be faster and less expensive than a judicial one, it usually takes less time and effort to foreclose with a deed of trust than with a mortgage.

As a home buyer, you don’t have the option to choose between a mortgage or a deed of trust, even if you live in one of the nine states that allow both. In those states, the lender chooses which document to use.

A deed of trust works similarly to a mortgage by making a piece of real property the collateral for a loan. This means that if you don’t make your loan payments on time, your lender can foreclose on the property. Unlike a mortgage, though, a deed of trust typically allows for foreclosure without the need to first obtain a court order.

Here’s how the process works:

The trust deed includes a promissory note that spells out the exact terms of the loan including the principal, interest, occupancy, insurance and maintenance requirements. The borrower signs this note, agreeing to repay the borrowed money.

The trustee holds legal ownership of the property or in some states just holds the lien, which is a legal claim to the asset, but has no control over that property unless the borrower doesn’t make their scheduled payments per the terms of the agreement.

While the buyer is making payments, the lender keeps the promissory note. Once the loan is paid off, however, the promissory note is marked “paid in full” and the deed is returned to the buyer. At this point, the buyer will own the property outright.

Requirements to create a deed of trust

A valid deed of trust must always involve three parties:

The borrower, also known as the trustor.

The lender, also known as the beneficiary .

The trustee, which is typically a title company that holds legal title to the real property or, in some states, just holds the lien.

The deed of trust document should contain the following information:

The names of all the involved parties (borrower, lender and trustee).

A description of the property involved.

The original amount of the loan.

Loan inception and maturity dates.

Any fees or riders involved.

What will happen in the event of loan default.

Depending on the nature of the sale, any other relevant details.

The following states (and Washington, D.C.) use deeds of trust instead of mortgages:

California.

Massachusetts.

Mississippi.

New Hampshire.

New Mexico.

North Carolina.

Rhode Island.

Washington.

West Virginia.

Deeds of trust and mortgages are allowed in these states:

South Dakota.

All remaining states use only mortgages:

Connecticut.

New Jersey.

North Dakota.

Pennsylvania.

South Carolina.

A warranty deed is a document required by some lenders before they approve financing. It certifies that the seller is the true owner of the property and has the right to sell it and that there are no outstanding debts, liens, judgments or encumbrances on the property.

A deed of trust is a lending contract, while a warranty deed is offered by a seller to a buyer for the buyer’s protection.

You can deduct your loan interest payments on your income tax return for home mortgages and deeds of trust. To do so, just be sure the property has been recorded as your principal residence in your county records [0] IRS.gov . Publication 936 (2022), Home Mortgage Interest Deduction . Accessed Jun 1, 2023. View all sources .

If you have a loan secured by a deed of trust and your lender sells that trust deed, an assignment of trust deed assigns that deed of trust to the new buyer of your loan (typically another lender). The assignment of deed of trust grants the new loan purchaser all rights to the property and is recorded as public record along with the original deed of trust.

A reconveyance in a deed of trust is a transfer of property (minus the lien) to the borrower from the trustee or the lender. This happens when the borrower has paid off the loan and satisfied the terms of the debt, and it means the lender no longer has an interest in the property.

You can deduct your loan interest payments on your income tax return for home mortgages and deeds of trust. To do so, just be sure the property has been recorded as your principal residence in your county records

On a similar note...

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Assignment vs Trust - What's the difference?

In lang=en terms the difference between assignment and trust, in computing terms the difference between assignment and trust, as nouns the difference between assignment and trust, as a verb trust is, as an adjective trust is, derived terms.

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What Is a Trust Deed?

Understanding trust deeds, trust deed vs. mortgage, what is included in a trust deed, foreclosures and trust deeds.

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Trust Deed: What It Is, How It Works, Example Form

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A trust deed —also known as a deed of trust —is a document sometimes used in real estate transactions in the U.S. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.

Although trust deeds are less common than they once were, some 20 states still mandate the use of one, rather than a mortgage , when financing is involved in the purchase of real estate. Trust deeds are common in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia.

A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages.

Key Takeaways

• In financed real estate transactions, trust deeds transfer the legal title of a property to a third party—such as a bank, escrow company, or title company—to hold until the borrower repays their debt to the lender.
• Trust deeds are used in place of mortgages in several states.
• Investing in trust deeds can provide a high-yielding income stream.

A trust deed is a transaction between three parties:

• Lenders , officially known as beneficiaries . These are the interests a trust is supposed to protect.
• A borrower , otherwise known as a trustor . This is the person who establishes a trust.
• A trustee , a third party charged with holding the entrusted property until a loan or debt is paid for in full.

In a real estate transaction—the purchase of a home, say—a lender gives the borrower money in exchange for one or more promissory notes linked to a trust deed. This deed transfers legal title to the real property to an impartial trustee , typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes . The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.

This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property transfers to the borrower. If the borrower defaults on the loan, the trustee takes full control of the property.

Trust deeds and mortgages are both used in bank and private loans for creating liens on real estate, and both are typically recorded as debt in the county where the property is located. However, there are some differences.

Number of Parties

A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). When a borrower signs a mortgage, they pledge the property as security to the lender to ensure repayment.

In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the lien for the lender's benefit; if the borrower defaults, the trustee will initiate and complete the foreclosure process at the lender's request.

Type of Foreclosure

In the event of default, a deed of trust will result in different foreclosure procedures than a mortgage. A defaulted mortgage will result in a judicial foreclosure, meaning that the lender will have to secure a court order. Trust deeds go through a non-judicial foreclosure, provided that they include a power-of-sale clause.

Judicial foreclosures are more expensive and time-consuming than non-judicial foreclosures. This means that in states that allow them, a deed of trust is preferable to a mortgage from the lender's point of view.

Contrary to popular usage, a mortgage is not technically a loan to buy a property; it's an agreement that pledges the property as collateral for the loan.

A deed of trust will include the same type of information stated in a mortgage document, such as:

• The identities of the borrower, lender, and trustee
• A full description of the property to be placed in trust
• Any restrictions or requirements on the use of the property while it is in trust
• The terms of the loan, including principal, monthly payments, and interest rate
• The terms of any late fees and penalties in the event of repayment

In addition, a trust deed will also include a power of sale clause that gives the trustee the right to sell the property if the borrower defaults.

Mortgages and trust deeds have different foreclosure processes. A judicial foreclosure is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive.

Also, if the foreclosed property auction doesn't bring in enough money to pay off the promissory note, the lender may file a deficiency judgment against the borrower, suing for the balance. However, even after the property is sold, the borrower has the right of redemption : they may repay the lender within a set amount of time and acquire the property title.

In contrast, a trust deed lets the lender commence a faster and less expensive non-judicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, the property is put up for auction through a trustee's sale.

The title transfers from the trustee to the new owner through the trustee's deed after the sale. When there are no bidders at the trustee sale, the property reverts to the lender through a trustee's deed. Once the property is sold, the borrower has no right of redemption.

Furthermore, a trustee has the responsibility of paying the proceeds from the sale to the borrower and lender after the sale is finalized. The trustee will pay the lender the amount left over on the debt and pay the borrower anything that surpasses that amount, thereby allowing the lender to purchase the property.

Pros and Cons of Investing in Trust Deeds

Investors who are searching for juicy yields sometimes turn to the real estate sector—in particular, trust deeds.

In trust deed investing, the investor lends money to a developer working on a real estate project. The investor's name goes on the deed of trust as the lender. The investor collects interest on the loan; when the project is finished, the principal is returned to the investor in full. A trust deed broker usually facilitates the deal.

High-yielding income stream

Portfolio diversification

Illiquidity

No capital appreciation

What sort of developer enters this arrangement? Banks are often reluctant to lend to certain types of developments, such as mid-size commercial projects—too small for the big lenders, too big for the small ones—or developers with poor track records or too many loans. Cautious lenders may also move too slowly for developers up against a tight deadline for commencing or completing a project.

Developers like these are often in a bit of a crunch. For these reasons, trust deed investors may often expect high interest rates on their money. They can reap the benefits of diversifying into a different asset class without having to be experts in real estate construction or management. This is a form of passive investment .

Trust deed investing has certain risks and disadvantages. Unlike stocks, real estate investments are not liquid , meaning investors cannot retrieve their money on demand. Also, investors can expect only the interest the loan generates; any additional capital appreciation is unlikely.

Invested parties may exploit any legal discrepancies in the trust deed, causing costly legal entanglements that may endanger the investment. The typical investor with little experience may have difficulty, as it takes specific expertise to find credible and trustworthy developers, projects, and brokers.

Real-World Example of a Trust Deed

A short-form deed of trust document used in Austin County, Texas , covers the requirements for most lenders. The form begins with a definition of terms and spaces for the borrower, lender, and trustee to fill in their names. The amount being borrowed and the address of the property are also required.

After this section, the document goes on to specify the transfer of rights in the property and uniform covenants including:

• Details about payment of principal and interest
• Escrow funds
• Property insurance and structure maintenance
• Structure occupancy—stipulating the borrower must take up residency within 60 days

The form also includes nonuniform covenants, which specify default or breach of any of the agreement terms. And it specifies that the loan the document deals with is not a home equity loan —that is, something the borrower will receive cash from—but one for purchasing the property.

The deed of trust ends with a space for the borrower's signature, which must be done in the presence of a notary and two witnesses, who also sign.

What Is Assignment in a Deed of Trust?

In real estate law, " assignment " is simply the transfer of a deed of trust from one party to another. This usually happens when the beneficiary of a trust deed sells their loan to another lender.

What Is Reconveyance in a Deed of Trust?

In real estate law, reconveyance means the transfer of a property from a lender or trustee to a borrower. This usually happens at the end of a mortgage or other loan, when the borrower has satisfied the terms of their debt.

Who Can Be a Trustee in a Deed of Trust?

Some states have laws limiting who can act as a trustee in a deed of trust. In these states, the trustee must be a bank, credit union, thrift, title insurance company, attorney, or other company specifically authorized to hold a trust. In other states, anyone can act as a trustee.

Trust deeds are an alternative to mortgages in certain states. Instead of an agreement directly between a lender and a borrower, a trust deed places the title of a property in the hands of a third party , or trustee. Only after the borrower has satisfied the terms of their debt to the lender will the property be fully transferred to the borrower.

Rocket Lawyer. " Which States Allow Deeds of Trust? "

Legal Information Institute. " Non-Judicial Foreclosure ."

Legal Zoom. " Naming a Trustee in Your Deed of Trust ."

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Is a General Assignment Sufficient to Fund a Revocable Trust?

• Harry S. Margolis
• August 4, 2011

By Harry S. Margolis

If you sign a document saying that all of your assets will go into a revocable trust, will this work to fund the trust and avoid probate, or do you need to retitle each asset and account individually? Often trusts include a Schedule A with a list of property to be transferred to the trust, but is that sufficient?

In the California case of Kucker v. Kucker , the California Appeals Court answered in the affirmative, saying (with some caveats) that the general assignment worked.

Mona Berkowitz, age 84, executed a revocable trust and a general assignment of all of her personal property to the trust. Personal property includes bank accounts, investment accounts, cash, and personal belongings such as furniture, artwork, clothing, and jewelry.

At issue in this case was whether the general assignment covered certain stock. There was a specific assignment of some stock, but one company was inadvertently left off the form. If it was not covered by the general assignment, Ms. Berkowitz’s estate would have to be probated and the stock might pass to someone different, depending on the terms of her will and trust.

The trial court determined that the general assignment did not cover the stock.  But on appeal, the California Court of Appeals reversed the decision, determining that (1) there is no California law prohibiting the assignment of stock to a trust through a general assignment and (2) that it was clear that Ms. Berkowitz intended to transfer all of her property to the trust. The Court commented that this finding would be different if real estate were involved.

While this case seems to have worked out for Ms. Berkowitz’s intended heirs, we counsel clients to go the extra step of changing title to property they want to include so that there’s no question that it has been transferred to the trust. And, of course, the details of this case decision only applies in California. Anyone in Massachusetts would be wise to consult with a trusted attorney in this state.

Interested in reading more about this topic?

How Do I Fund My Revocable Trust?

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REAL ESTATE LAW

What is a deed of trust with assignment of rents.

By Rebecca K. McDowell, J.D.

February 24, 2020

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

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• What Is a Corporate Assignment of Deed of Trust?

A deed of trust is a written instrument granting a lien on real property. While slightly different from a mortgage, they are functionally nearly the same. Some states use deeds of trust instead of mortgages while others allow both. Either way, a deed of trust used to secure a commercial loan may also include an assignment of rents , which gives the lender the right to collect rental income from the property in the event of default.

What Is a Deed of Trust?

A ​ deed of trust ​ is a document that a borrower may execute in favor of a lender to give the lender a lien on a parcel of real estate. Like a mortgage, a deed of trust secures the loan by allowing the lender to foreclose on the real estate if the loan isn't paid (although in some states that use deeds of trust, a foreclosure isn't necessary).

​ Read More: ​ How to Research a Deed of Trust

Deed of Trust vs. Mortgage

A deed of trust is very similar to a mortgage in that it pledges property to secure a loan. A mortgage, however, is simpler; the property owner executes a mortgage document in favor of the lender, and the lender records the mortgage and has a lien , but the property owner still holds title to the property.

A deed of trust, on the other hand, grants an actual ownership interest in the property to a trustee, who holds the property in trust for the lender until the obligation is paid.

What Is an Assignment of Rents?

An ​ assignment of rents ​ is extra security granted to a lender that provides a commercial loan. Commercial loans are loans that are not made for family or household use but for business purposes.

When a borrower grants a mortgage or deed of trust on real estate and the real estate has tenants who pay rent, the lender can demand an assignment of rents in addition to the mortgage or deed of trust.

The assignment of rents means that if the borrower defaults on the loan, the lender can step in and collect the rents directly from the tenants.

Deed of Trust With Assignment of Rents

A deed of trust may contain an assignment of rents clause for that same property. In addition to a clause in the deed of trust, the lender may also require the borrower to execute a separate document called an "Assignment of Rents" that is recorded with the register of deeds.

Whether the assignment is written in the deed of trust only or is also contained in a separate document, it is binding on the borrower as long as its language is clear and sufficient to create an assignment under state law.

Exercising an Assignment of Rents

When a lender decides to collect the rents on the borrower's property, the lender is said to be exercising the assignment of rents. The lender cannot exercise the assignment unless the borrower has defaulted on the loan. Once that happens, the lender can send a written demand to the tenant or tenants, requiring that the rents be paid directly to the lender.

Absolute Assignments of Rents

An assignment of rents most likely will contain language that the assignment is an ​ absolute assignment ​. In most states, an absolute assignment gives the lender an immediate interest in the rents. This means that the lender actually owns the rents and is simply allowing the borrower to collect them on license until an event of default. Once a default occurs, the lender can intercept the rents without taking any court action; a letter to the tenants is all that's needed.

Every state's laws are different; the law of the state where the property is located will dictate how a lender can exercise an assignment of rents.

​ Read More: ​ What Is the Difference Between a Deed and a Deed of Trust?

• Companies Incorporated: Mortgage States and Deed of Trust States
• American Bar Association: Commercial Real Estate FAQs
• Schulte Roth & Zabel: Sixth Circuit Upholds Assignment of Rents to Secured Lender
• Findlaw: California Civil Code - CIV § 2938
• Legal Beagle: What Is the Difference Between a Deed and a Deed of Trust?
• Legal Beagle: How to Research a Deed of Trust
• Legal Beagle: Documents Needed to Refinance a Mortgage
• Legal Beagle: How to File a Property Lien

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Assignment of Deed of Trust Vs. Deed or Grant Deed

A grant deed is used to transfer ownership rights in real estate.

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More Articles

•   1. What Is the Difference Between the Deed of Absolute Sale and the Deed of Assignment?
•   2. What is an Assignment of Trust Deed?
•   3. Warranty Deed Vs. Deed of Trust

Property rights in real estate are valuable and invariably the subject of a legal document called a deed. To transfer ownership rights in real estate, a grant deed is commonly used. When a loan is obtained to purchase real estate, a deed of trust is often used to give the lender rights in the real estate to secure repayment of the loan. An assignment of deed of trust is used by a lender when it sells its loan secured by a deed of trust.

Property Deeds

Real estate transactions that involve the transfer of property rights require a deed to ensure the transfer of rights is effective. All deeds are written documents that include a description of the affected real estate and the names of the persons whose property rights are being transferred. Although not legally require to make the transfer effective, deeds are routinely recorded with the local government office responsible for recording real estate transactions. A recorded deed gives the public notice regarding property rights in a particular parcel of real estate, such as ownership, easements and liens. Recording a deed can also protect a property owner against future claims that his property rights are invalid.

A grant deed is used to transfer real estate ownership from one person to another. The transfer of ownership can be for a full parcel of real estate or just a portion of the real estate. Grant deeds are most often used in real estate sales between an unrelated buyer and seller. However, a grant deed may also be used to transfer ownership as a gift. When a grant deed is used, the person transferring ownership rights is promising to the person receiving ownership rights that these rights have not been previously transferred to anyone else.

Deed of Trust

A deed of trust is used in a three-party transaction involving the repayment of a debt. The first party is a real estate owner or buyer who is borrowing money that can be used for any purpose, but is typically used to fund the purchase of the real estate. The second party is the lender, such as a bank or other financial institution, providing the funds to the borrower. To secure repayment of the loan, the borrower signs a deed of trust which transfers legal title to his real estate to a third party, called the trustee, who can be any individual or company that does not have any interest in the loan or real estate. The borrower continues to have the beneficial use of the property with the trustee only taking action if the borrower defaults on his loan. If the lender and borrow cannot work out a resolution of the default, the lender can instruct the trustee to conduct a foreclosure sale of the real estate and deliver the sale proceeds to the lender to repay the loan.

Assignment of Deed of Trust

Loans that are secured by a deed of trust often include repayment terms that extend for several years or more. From a lender’s perspective, a loan secured by a deed of trust is a fairly safe investment when the value of the real estate is sufficient to repay the loan in the event of a borrower's default. This aspect makes existing loans secured by a deed of trust suitable for sale from the original lender to another lender during the life of the loan. To complete the sale of a loan secured by a deed of trust, the original lender uses a document called an assignment of deed of trust to transfer its rights in the deed of trust to a new lender.

• FindLaw: What Are Property Deeds?
• Cornell University Law School Legal Information Institute: Deed of Trust
• California Department of Real Estate: Trust Deed Investments -- What You Should Know?

Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.

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What is the difference between the deed of absolute sale and the deed of assignment, what is an assignment of trust deed, warranty deed vs. deed of trust, land sale contract vs. trust deed, what is the redemption period in tennessee, what is the collateral assignment of a life insurance policy, how to assume a promissory note, transferring a deed of trust to a granddaughter, owner finance laws, definition of 'trustee' in real estate, certificate of title vs. deed, foreclosure right of redemption & tenant's rights in maryland.

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A Deed of Trust can be Assigned Apart from the Note, and that often occurs just before a foreclosure. But What Does That Mean? Not Much, the Deed of Trust is Inseparable from the Note

Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned ? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust .

The subject was again addressed by the California Courts in Domarad v. Fisher & Burke, Inc. (1969) 270 Cal. App. 2d 543 ). The Court noted that a deed of trust is a mere incident of the debt it secures and that an assignment of the debt carries with it the security. “The deed of trust is inseparable from the debt and always abides with the debt, and it has no market or ascertainable value, apart from the obligation it secures and that a deed of trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect. (emph. added)”

In Stockwell v. Barnum ((1908) 7 Cal. App. 413) the Court stated that this Code “is wholly foreign to deeds of trust, which, instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title. It is immaterial who holds the note. The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an incumbrancer to whom power of sale is given…” Stockwell @ 417.

And more recently “it has been established since 1908 that this statutory requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to exercise the power of sale applies only to a mortgage and not to a deed of trust.” ( Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118 , 122.)

Why is that? There is a technical difference between the two security instruments. The mortgage only involves two parties –the borrower who grants the power of sale to the lender, and the lender who then holds the beneficial interest in the mortgage plus the power of sale. A deed of trust, on the other hand, involves three parties: the borrower, the lender, and the trustee who is granted conditional title to the encumbered property as well as the power of sale.

Thus, the deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the ‘true owner’ or ‘beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” Yvanova v. New Century Mortgage (62 Cal. 4th 919) (2016)

An Alternative The Commercial Code also provides a mechanism for recording an assignment of the security if there has been an off-record transfer of the note but no recorded assignment of the deed of trust or mortgage. The buyer of the note can record a copy of the transfer agreement whereby the note was acquired, together with a sworn statement that a default has occurred, and in that event may proceed with a nonjudicial foreclosure. ( Cal. Com. Code, § 9607, subd. (b))

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A General Assignment of Assets to one’s Living Trust can help avoid a Probate.

                 Re-titling assets, like stock and bonds, from one’s name into one’s living trust is necessary to avoiding an unnecessary probate of such assets if held outside of the trust.   Sometimes people fail to transfer some or all of their intended trust assets into their trust.   A general assignment of assets to one’s living trust provides an important safeguard. Let’s examine what a general assignment is and how it helps to fund one’s trust and avoid a probate with the help of a Lake County probate attorney:

                A general assignment of assets transfers ownership on a wide variety of assets as the name implies.   An all encompassing general assignment is regularly used by estate planners to transfer all types of financial assets (excluding tax deferred retirement accounts) and personal property (such as the contents of one’s home) into the trust. It is a half-step towards actually re-titling the securities and the financial accounts into the name of the trustee.   Nevertheless, the settlor should still proceed to contact the banks, brokerages, and stock transfer agents (as relevant) to formally transfer legal title into the name of the trustee.   But, in the event that the formal legal title is not transferred prior to death, the general assignment can be used to obtain a court order to transfer legal title into the trust.

                In Kucker v. Kucker , (2011), 192 CA 4 th , 90, the Court of Appeal reversed a trial court decision wherein the trial court disallowed a petition to transfer stocks into a trust based on a general assignment of all assets by the settlor to the trustee.   The Court of Appeal agreed with the petitioner that a general assignment of all or substantially all of the settlor’s assets into one’s trust does cause the stocks to be owned by the trustee.   An otherwise unnecessary probate was thus avoided thanks to a general assignment by the settlor.

                Similarly, a declaration of trust by a settlor to hold certain assets listed on a schedule of pledged assets attached to a trust document can likewise be used to accomplish the same result.   Most attorneys use a schedule of initial trust assets and a general assignment to reinforce one-another.   Moreover, unlike the general assignment, the schedule of trust assets will also include the real estate – together with a full legal description — for the same reason.   That is, if a trust transfer deed is not properly executed prior to the settlor’s death, then the schedule of initial trust assets to a declaration of trust can be used to petition the court to transfer legal title into the trust without a probate.

                While the general assignment and the declaration of trust are important safeguards against the failure to formally transfer title to trust assets while the settlor is still alive and competent, such safeguards are just safeguards.   The better course of action is to see that one’s real estate, stocks and bonds, and financial accounts (and other trust assets) are properly titled in the name of the trustee of one’s trust.   After all, filing a court petition entails further expenses and delay in the administration of the trust that can be avoided.   

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Giving up your inheritance: Assignments vs disclaimers

On Behalf of The Probate House L.C. | Apr 27, 2019 | Estate Administration |

You’ve inherited part of a family member’s estate. Maybe they designated you as a beneficiary in their will. Perhaps they died without a will (“intestate”) and you are due a portion of the estate under California’s probate laws. What if you don’t want or need the inheritance? You’d prefer that someone else receive it — or at least a portion of it? Maybe you have a sibling who has greater need for the money (or property) than you do.

You can make what’s called an “assignment.” You assign (transfer) all or part of your interest in the estate to someone else. This is not just an informal transfer. There are legal steps that need to be taken since the assignment contradicts what the decedent designated or what the law requires based on familial relationship.

There are also tax implications for both the person who makes the assignment (the assignor) and the person who receives it (the assignee). The assignment has to be filed with the probate court before the distribution can be made to the assignee.

Note that inheritances from a trust typically cannot be assigned to someone else. Most trusts prohibit assigning an undistributed trust inheritance. This is often done to prevent creditors from being able to claim assets in a trust.

An assignment should not be confused with a disclaimer. A disclaimer is when someone refuses an inheritance. If you want to disclaim an inheritance, you don’t have any direct say in what happens to it. Legally, the assets involved are treated as though the person designated to inherit them predeceased the person whose estate is being settled. That means it could go to the next person in the line of succession, such as the children of the person who disclaims the inheritance.

There are legal restrictions on disclaiming an inheritance. There are time constraints, for example. Further, you can’t have received any benefit from the inheritance (like income from a property) before you disclaim it. Unlike an assignment, an inheritance from a trust can be disclaimed.

Whether you want to make an assignment or a disclaimer, it’s essential to take the appropriate legal steps. Trying to do it informally can create legal issues for the estate and everyone involved. Discuss your intentions with an estate planning attorney who can help you follow the proper legal procedures.

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Assignment of Interest In LLC: Everything You Need to Know

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. 3 min read updated on February 01, 2023

Updated October 28, 2020:

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. The assignment is usually done as a means for members to provide collateral for personal loans, settle debts, or leave the LLC. The member (assignor) and the person assigned (assignee) sign a document called the Membership Assignment of Interest.

Why a Member May Want to Assign Interest

A member may choose to assign interest for a number of reasons.

• The assignment of interest may happen as collateral to a loan to one of the members.
• Some members can assign interest to settle debts. The assignment will be effective until the debt is cleared.
• An assignment of interest can also' be done  to a member's legal heirs , going into effect upon the death of a member. 

The Rights and Limitations of the Assignee

The laws governing LLC membership interest assignments vary considerably from one state to another. 

• Most states prohibit the assignee from participating in the LLC's operations or decisions unless the Articles of Organization have this provision.
• An assignee is protected from liability from the assignor until the assignee becomes a member in most states. However, the law in a few states, including California and Florida, states that the assignee does get the assignor's liability.
• Should the assignee become a member after the assignment, he is only entitled to the rights and restrictions the assignor had.
• The assignment usually gives the assignee the right to receive the assignor's share of the profits — but not necessarily the other rights.

The Rights and Limitations of the Assignor

• In many states, all LLC members have the right to assign membership interest.
• In most states, assigning interest does not necessarily lead to forfeiting of voting and management rights and can be temporary. Texas law, on the other hand, states that the assignor ceases to be a member of the LLC after the assignment.

The Rights and Limitations of Other Members

• All members of the LLC have to be notified of any type of assignment.
• Some states require the assignment of interest to be approved by all members.
• The new person who has been assigned interest does not necessarily become a member even if the assigner has decided to leave the LLC. The other members can decide whether to admit the assignee as a member or not. Should a member assign interest without the input of other members, the interest is normally limited to financial benefits.
• In a two-member LLC, one member can easily transfer the interest to the other. 

The Membership Interest Assignment Document

The LLC's operating agreement should explain the rights of members on issues of transfer of interest, and the agreement should be followed during the assignment process. The Membership Interest Assignment acts as a record of the agreement, and the LLC normally keeps a copy of the document. The law in most states does not provide a formal template of the Membership Interest Assignment document but lists what should be included in the document. The document should have the following details:

• Percentage of interest that will go to the assignee 
• Whether the assignee will have voting rights
• The signatures of the assignor and the assignee

Assignment of Interest Versus Selling Ownership Stake

The assignment of interest is typically different from selling the ownership stake . Selling a member's ownership stake in the LLC requires unanimous approval by the other members. A departing member may also assign his membership to another member.

If a member is being paid to transfer interest, this is treated for tax purposes as a sale, and the selling member's gains might be liable to capital gains tax. Even if a departing member is not paid for his interest, if the departure results in the assignee getting the departing members' share of liability, the departure is seen as an exchange or sale.

Assignment of Interest Versus Abandoning an LLC

If a member wants to withdraw interest in an LLC, he/she can choose to simply legally abandon the LLC in most states. The abandoning member should give some kind of notice to the other members explaining that he is abandoning membership. Abandoning membership does not usually require the approval of other members.

Abandoning an LLC does not absolve the member of liability he/she may have incurred when still a member.

If you need help with the assignment of interest in LLCs, you can  post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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• LLC Membership Interest Transfer Agreement
• What Is the Definition of Assigns
• Assignment of Interest
• Assignment Law
• Assignment of Interest Form
• Assignment of Rights Example
• Assignment of Rights and Obligations Under a Contract
• Assignment Agreement Definition
• Legal Assignment
• Partial Assignment of Contract

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What Is a Deed of Trust With Assignment of Rents?

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Some states refer to a voluntary lien against real property in exchange for money as a mortgage, while others refer to it as a deed of trust. Both mortgages and deeds of trust may incorporate an assignment of rents and leases that allows the lender to collect rent money held by,or due to, the property owner by tenants once the owner defaults or fails to make payments. An assignment of rents and leases may also be recorded as a separate document.

Absolute Assignment

A lender may require a borrower to execute an absolute assignment of rents in conjunction with a deed of trust. This conveys the rents to the lender at the time of the assignment but, in actuality, allows the borrower, as a licensee, to continue to collect the rents so long as the deed of trust is not in default. Payments under an absolute assignment will ordinarily be paid to the borrower or owner of the property as long as the loan secured by the deed of trust is not in default.

Collateral Assignment

In a collateral assignment, the borrower is generally considered to retain ownership of the rents until the lender takes action to enforce the assignment or gains possession of the property through foreclosure. One concern for the lender in this instance is that, in a judgement, other creditors will take priority, causing the lender to lose its security interest in the rent.

Rights After Default

Under an absolute assignment, if a borrower defaults on the deed of trust, the lender may request appointment of a receiver to collect the rents until foreclosure of the deed of trust or a determination of ownership of rents by a court of law. This prevents the borrower’s disposing of rent money due the lender, pending foreclosure. Under a collateral interest, however, some bankruptcy courts have held that the rents belong to the borrower until title to the real estate merges with the right to collect rents. If this is the case, and the borrower continues to operate as a debtor-in-possession of the property under bankruptcy, the lender may not be entitled to receive any rent money unless or until the bankruptcy court allows foreclosure of the property.

Uniform Assignment of Rents Act

Due to the inconsistency in interpretation of state law pertaining to assignment of rents and leases, some states have adopted a Uniform Assignment of Rents Act that better clarifies how rent monies will be handled in the event of default under the deed of trust and loan documents. The uniform act generally strengthens the lender’s position by recognizing his interest in rent money pending foreclosure and bankruptcy proceedings.

• Agentxtra.net: Assignment of Rents, Leases and Profits
• Polsinelli Shughart: Exercising an Assignment of Rents: Who is Entitled to the Money?
• Andrews Kurth, LLP: Texas Enacts the Texas Assignment of Rents Act
• Much Shelist: Assignment of Rents in Illinois: Shaky Ground for Commercial Lenders

Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.

Should You or the Trust Pay a Trust's Income Taxes?

Irrevocable trusts can be set up so that the trust maker no longer pays income taxes, and the taxes are instead paid by the trust. What are the pros and cons?

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Editor’s note: This is part seven of an ongoing series about using trusts and LLCs in estate planning, asset protection and tax planning. The effectiveness of these powerful tools — especially for asset protection and tax planning — depends very much on how they are configured to work together and whether certain types of control over assets and property are surrendered by the property owner. See below for links to the other articles in the series.

An irrevocable trust agreement must be designed, drafted and implemented to deal with two primary categories of taxes: 1) transfer taxes, such as gift and estate taxes, as well as the less common generation skipping transfer tax, and 2) income taxes, such as earned income taxes, income taxes on investment or capital gains taxes, which are income taxes on property appreciation after the property is sold or exchanged.

Either the irrevocable trust or an individual will pay taxes on all trust income. Trust income includes rents on real estate, profits produced by trust investments, the appreciation income from property sold or distributions of assets from the trust . Under the comprehensive tax rules, all trust income must be reported on either the trust income tax return (at trust tax rates) or on the tax return of the trust maker or beneficiary (at individual tax rates).

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Putting this into different words, irrevocable trusts can be set up so that the trust maker no longer pays income taxes, and the taxes are instead paid by the trust. Note that the income tax rules for non-U.S. residents and non-U.S. citizens will vary quite a bit from the income tax rules we are discussing here.

Trust tax rates are much higher than individual tax rates

Why wouldn’t everyone want to set up an irrevocable trust so that they don’t need to individually pay income taxes any longer? The reason why most taxpayers are better off to pay taxes individually rather than having a trust pay income taxes is because trust tax rates are often much higher than individual tax rates .

The higher trust tax rates are due to the fact that an irrevocable trust has only hundreds of dollars in standard deduction, and an irrevocable trust pays the highest federal tax rate after just a few thousand dollars of income. Unless the irrevocable trust maker is already paying taxes at the highest marginal individual tax rate, it is almost always less expensive for the trust maker to keep on paying the trust income taxes.

Example. A trust maker with rental properties reads that they can stop paying taxes themselves by forming a trust. The trust maker asks an attorney to set up a trust with rental property LLCs so that the trust will pay taxes, thinking that the trust and LLC structure will save a lot of taxes. When the attorney calculates how much the trust would pay in taxes compared to the trust maker paying individually, the trust would pay more than two times more taxes! The attorney advises the trust maker that instead of having the trust pay taxes, the trust maker should set up a trust with “grantor” provisions so that the trust maker will continue paying taxes at the trust maker’s lower tax rates.

The fact is that most people would save on taxes by continuing to pay income taxes on the irrevocable trust income themselves, rather than having the irrevocable trust pay the income taxes at trust tax rates. The feature in an irrevocable trust that permits the trust maker or another person to pay trust income taxes is known as “grantor trust status.”

As a general rule, if an irrevocable trust is treated as a grantor trust, this means that an individual (typically the trust maker) will be treated as the owner of the trust income or principal, and the individual needs to include on their personal tax filings all items of trust income, deductions and credits as though the individual had received them personally — even if the trust didn’t distribute the income to them personally and the income stays in trust. Where several different people are treated as owners of different parts of the trust income or principal (multiple grantors), the taxes will be allocated between the different people.

It is important to note that we are primarily discussing federal income tax here, though many (but not all) state income taxes and state capital gains taxes follow the federal income tax laws.

To be certain we are clear, I’ll again point out that trusts deal with both income taxes (including earned income, investment income, losses, deductions and capital gains income taxes), and trusts also deal with transfer taxes (estate and gift transfer taxes, as well as generation skipping transfer taxes ). On the transfer tax front, a trust may be designed to exclude assets from the trust maker’s gross estate (referred to as a completed gift trust), though the very same trust can be designed so that the income of the trust is taxed to the trust maker (grantor trust status).

Grantor trust rules are part of the tax code

The grantor trust rules are part of the Internal Revenue Code (IRC), which are found in Title 26 of the United States Code, the U.S. federal laws passed by Congress. More particularly, the grantor trust rules are found in Sections 671 to 679 of the IRC . The grantor trust rules generally provide that if the trust maker (or another person) has certain powers over the trust that are found in IRC Sections 673-679, the trust income will flow through to be taxed at the trust maker’s personal tax rates — and personal tax rates are almost always lower than trust tax rates.

A few examples of the powers that a trust maker can keep over the trust, so that the trust qualifies for grantor status and trust income is taxed to the trust maker, include generally: powers to invest (IRC 673); powers to reacquire trust assets, i.e. buy back trust property (IRC 673); powers to replace the trustee (IRC 675); powers to substitute property in the trust (IRC 675); power to use trust assets (IRC 677); power to veto distributions (IRC 678).

This sample list of grantor trust rules is very incomplete, and over time, billions of people with billions of needs have created millions of trusts with endless permutations of trust powers. This has caused the IRS, lawyers and tax court judges to spend countless hours determining whether bespoke and customized trust powers will cause trust income to be taxed to a grantor (usually the trust maker) or whether it should be taxed to the trust.

Complicating the matter of grantor trusts is the fact that some of the same trust income tax grantor powers will also cause a trust to be included in the gross estate and/or taxable estate of the trust maker. Again, estate tax is a different tax regime than trust income tax. For example, the power to revoke or amend the trust, a grantor trust power under IRC 676, will also cause a trust to be included in the grantor’s gross estate under a few different sections of the IRC (IRC 2036 and IRC 2038). In other words, a trust maker who retains the power to revoke or amend a trust (a revocable trust) ensures not only that the trust income is taxed to the trust maker, but also that the trust assets will be included in the trust maker’s gross estate.

Example. A trust maker forms a trust for a beneficiary, and the trust maker retains a “reversionary interest” under IRC 673 where the trust maker (or the trust maker’s estate) has the right to get back all of the trust property after the beneficiary dies. This grantor trust power will both cause the trust maker to be treated as the grantor for income tax purposes, and the trust property will also be included in the trust maker’s gross estate. The trust maker is happy with both tax results because the trust maker’s income tax rates are lower than trust income tax rates, and the trust property will get a step-up in basis by inclusion in the trust maker’s gross estate, although the trust maker will not owe any estate tax because the trust maker has adequate exemption from estate tax so that the trust maker’s gross estate is not taxable.

People who don’t have millions in wealth won’t pay estate taxes on their gross estates anyway, so the inclusion in the gross estate caused by grantor trust powers to amend under IRC 676 isn’t a problem at all. In fact, revocable trusts are usually the most tax-efficient type of trust for most people, who pay lower taxes individually compared to the higher trust tax rates, and a revocable trust also ensures that the trust property will qualify for a step-up in basis when the trust maker dies, under the capital gains rules of IRC Section 1014.

Because revocable trusts are both income tax and capital gains tax efficient, and revocable trusts are excellent for estate planning, revocable trusts are the most common type of trust . However, revocable trusts do nothing to protect assets, and revocable trusts don’t remove assets outside of the gross estate for people who have some wealth and need to avoid the estate tax.

Example. A trust maker engages an attorney to set up an irrevocable trust with the objectives of protecting assets and to avoid estate taxes on their estate. The trust maker has low tax basis in rental properties because the rentals were purchased 30 years ago when properties were considerably less expensive. The trust maker’s gross estate ( a concept similar to total net worth) is $5 million. The attorney advises the trust maker to form an irrevocable asset protection trust to hold the LLCs. The attorney drafts the trust to include provisions so that the trust maker retains grantor powers to pay taxes on the rentals by retaining rights to borrow against the rentals. The attorney also drafts the trust with provisions so that the trust maker retains rights to use trust income. When the attorney and trust maker meet, the attorney explains that the trust powers drafted in the trust not only cause the trust maker to pay taxes on the trust income — at income tax rates much lower than the trust would pay — but the powers also cause the trust-owned rentals to be included in the gross estate of trust maker. The trust maker is surprised that the attorney didn’t draft the trust to exclude the rentals from their gross estate, thinking that because the assets are included in the gross estate, the trust maker’s beneficiaries will need to pay estate taxes. The attorney explains that even though the rental properties are included in the trust maker’s gross estate, the trust maker has significant estate tax exemption, so the beneficiaries will not owe any estate tax. More important, because the low-basis rental properties are included in the gross estate, the inclusion in the estate will qualify the low-basis rental properties for a step-up in basis to the value at the time of death. This step-up in basis will save the beneficiaries significant capital gains taxes when the trust maker dies.

Why use a non-grantor trust vs a grantor trust?

Non-grantor trusts, defined as “complex” by the IRS, are trusts that owe income tax at the trust level and do not push out income and deductions to individuals. You may be wondering — if a non-grantor trust pretty much always pays the highest marginal tax rates, why would I want anything other than a grantor trust? Here is a scenario that illustrates when it could make sense to terminate the grantor trust powers and switch a trust to non-grantor.

Example. A trust maker has high income and is currently paying the highest marginal tax rate. The trust maker previously formed a completed gift trust that is outside of the trust maker’s gross estate, and the completed gift has grantor trust income tax provisions so that the trust income flows through to the trust maker. However, the completed gift grantor trust income is being taxed to the trust maker personally at their highest marginal tax rate. Put differently, the trust maker does not save income taxes by personally paying the trust income taxes. Further, a trust maker does not need or want to spend down the trust maker’s personal assets that are included in the trust maker’s gross estate — i.e. the trust maker’s personal assets are diminishing and/or the trust maker cannot afford to keep paying taxes on behalf of the trust. Because there is not an advantage (or even what could be a disadvantage) to having the trust maker continue to pay the trust income taxes since they are taxed at the highest rate anyway, and also because there is not an advantage for the trust maker to pay trust income taxes to spend down their personal assets (gross estate), the trust maker decides to terminate the grantor trust powers.

A trust maker will need to decide on a trust income tax provision (either grantor or non-grantor) that is best suited to minimize their taxes, depending on how much the trust maker earns. Keep in mind that a trust can include a renunciation of grantor trust provisions where the trust maker pays the taxes individually and later have the trust pay the taxes rather than the trust maker (or beneficiary) if that will lower the trust’s and individual’s total income tax burden.

However, a provision that terminates the grantor trust status must not be “toggled” on and off to avoid income taxes, or the IRS will challenge the trust. Additionally, a grantor trust can include a provision to reimburse the trust maker for the taxes they pay, though such a provision can pose gift tax risks or even estate tax inclusion risks if the tax reimbursement power is mandatory.

Another advantage of grantor trusts

Another powerful advantage of grantor trusts for estate tax planning is the ability of grantor trusts to reduce any assets remaining in the trust maker’s estate by having the trust maker pay the income taxes on trust income. If the property transferred into a trust is removed from the trust maker’s estate because the trust maker gave up possession, enjoyment and control over trust assets (a completed gift), rather than having the trust pay income taxes with trust property, the trust maker can pay the taxes for the trust. Using the grantor trust provisions to have the trust maker pay taxes on the trust property is the functional equivalent of the trust maker transferring more property into the trust.

Grantor trusts have been on the “green book” tax agendas of the IRS and several U.S. presidents who are keen to take away the powerful advantages that grantor trust status provides. Keep in mind that revocable trusts are the most common type of trusts, and revocable trusts are always grantor status. No one is trying to do away with revocable trusts, and the grantor trust status that is automatically afforded to revocable trusts won’t be challenged by Congress. Rather, the IRS and some U.S. presidents have been trying to do away with grantor trust advantages when the grantor trust provisions are used by trust makers to increase the value of large, complex trusts by having the trust maker continue to pay the income taxes on the trust using the trust maker’s personal assets that are still subject to estate taxes.

As much as the news focuses on using grantor trusts to reduce the potentially taxable gross estate, non-grantor trusts have become a high priority of states with high income tax rates, such as California and New York. In these states, high-income earners have been setting up trusts in other jurisdictions with no trust tax (places like Delaware, Nevada, South Dakota or Wyoming) and making the trust “intentionally non-grantor” so that the trust pays federal income taxes but avoids the high California and New York taxes.

The trust makers also make the trust incomplete for estate tax purposes so that the trust assets are purposefully included in the trust maker’s gross estate to get a step-up in basis for capital gains tax purposes. Both California and New York have passed laws that work contrary to the federal law so that the high-income-tax states can still tax the income of the non-grantor trusts.

Grantor trust income tax provisions are powerful because they permit a trust maker to pay the trust taxes themselves — and individuals almost always pay taxes at a lower rate than a trust. Additionally, when the income tax planning afforded by grantor trusts is paired with estate tax planning, grantor trusts are a powerful mechanism to effectively reduce the trust maker’s gross estate remaining outside of the estate tax-exempt trust.

However, caution must be exercised with the grantor trust rules because they interplay very closely with the estate tax and capital gains tax rules.

My next article will focus on how grantor trust provisions can have a significant effect on whether trust assets will be included in the gross estate of a decedent for computation of estate transfer taxes, and whether it is desirable to have trust assets included in the gross estate.

Other Articles in This Series

• Part one: To Avoid Probate, Use Trusts for Estate Planning
• Part two: How Quitclaim Deeds Can Cause Estate Planning Catastrophes
• Part three: Revocable Trusts: The Most Common Trusts in Estate Planning
• Part four: With Irrevocable Trusts, It’s All About Who Has Control
• Part five: Ins and Outs of Domestic Asset Protection Trusts (DAPTs)
• Part six: Irrevocable Trusts: Less Control Equals More Asset Protection

Related Content

• Six Benefits of Setting Up a Trust for Your Assets
• Estate Planning: Who Needs a Trust and Who Doesn’t?
• Eight Types of Trusts for Owners of High-Net-Worth Estates
• Four Reasons Retirees Need a (Revocable) Trust
• Four Reasons You Don’t Need a (Revocable) Trust

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA .

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Rustin Diehl advises clients on tax, business and estate planning matters. Rustin serves as an adjunct professor, frequent speaker and is current or former chair of professional associations. Rustin is a prolific author and has published many technical and popular articles on estate and business issues, as well as drafting and advising legislators in developing numerous statutes pertaining to trust and estate and business planning, creditor exemption planning and digital asset (blockchain) trusts and blockchain entities known as decentralized autonomous organizations.

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Los Angeles Dodgers | Jason Heyward’s knee injury opens door for…

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Los angeles dodgers | good samaritan shot at during fatal fashion island robbery wishes he could have done more, los angeles dodgers, los angeles dodgers | jason heyward’s knee injury opens door for james outman to rejoin dodgers, heyward suffered a bruised knee on a play in thursday’s game and went on the il on friday. after almost two months in triple-a, outman was recalled..

The exam of Heyward’s left knee showed only a contusion similar to a hyperextension, according to Dodgers manager Dave Roberts. But there was no damage to the meniscus or ligaments in the knee.

“We think we dodged the bullet with Jason,” Roberts said.

Heyward injured his knee while trying to rob Joc Pederson of a home run in the first inning on Thursday night. Heyward jumped up to try and catch the drive. When he came down, he felt something on the outside of his left knee.

“I felt it immediately when I landed,” Heyward said after Thursday’s game. “It was one of those plays in the outfield where it still looks like you can catch the ball. Of course if I caught it, it would’ve been like robbing a homer. But that’s usually how those look, like ‘Hey you never know so jump just in case.’

“But as soon as I landed, it felt like one of those trust falls. It happened fast. Put my feet down and I was like ‘Alright, this doesn’t feel great.’”

Roberts estimated that Heyward could return in a couple of weeks. In the meantime, he was placed on the injured list – opening a spot for Outman to return to the big leagues.

After finishing third in the National League Rookie of the Year voting last season, Outman opened this year as the Dodgers’ every-day center fielder. He hit just .147 with a .516 OPS in 36 games before being demoted to Triple-A in mid-May.

In 38 games at Oklahoma City, Outman hit .279 with nine home runs, 21 RBIs and a .924 OPS. He said he used the time to step back and “kind of get back to the mindset and the player that got me to the big leagues.”

Practically that meant “being convicted in my swings, just going out and playing. It’s really pretty simple actually.” In the first month of the season, Outman said he became “maybe just too wrapped up in the mechanics and what the plan of attack was.”

“I think just kind of reminding myself it’s a game. We’re all good baseball players. Just go out there and play. Let the ball fall where it may,” he said.

Andy Pages has been the Dodgers’ primary center fielder. His offense has tailed off since a hot start but he remains productive against left-handed pitching (a .356 average and .906 OPS) while Outman has been “fantastic” against right-handers in Triple-A, according to Roberts. Pages and Outman could share playing time in center field. Heyward’s absence will also open up more playing time for Miguel Vargas, Roberts said.

“I think that Vargy is a neutral guy, and he’s taking good at-bats vs. right-handers so I do want to give him opportunities versus righties,” Roberts said of Vargas.

Vargas has made just 11 starts since being promoted from Triple-A when Outman was demoted, all in left field. But he has hit .308 (12 for 39) and this week he started taking ground balls at third base during pre-game workouts. It’s a position he played in the minor leagues but not at all this season.

“Vargy hasn’t played third base in quite some time. But given where Max (Muncy) is at, it just made more sense to kind of push him along and see how it looks to give us another option,” Roberts said. “Third base as we look out – it might happen.”

In the first 43 games Muncy has missed with his oblique strain, his replacements at third base combined to hit .162 (24 for 148).

The Dodgers will promote left-hander Justin Wrobelski to start Sunday’s game against the Milwaukee Brewers. It will be the major-league debut for the fast-rising prospect.

After pitching for one season at Oklahoma State, Wrobelski had Tommy John surgery two months before the 2021 draft. The Dodgers took him in the 11th round anyway and signed him to an over-slot $197,500 bonus.

After debuting with 21⅔ innings in 2022, he spent 2023 with Class-A Great Lakes and was named a Midwest League All-Star after going 4-4 with a 2.90 ERA. He started this season in Double-A where he went 5-2 with a 3.06 ERA and earned a June promotion to Triple-A. He struck out 11 in five innings in his debut with OKC. He has a 4.35 ERA after two starts in Triple-A with 17 strikeouts in 10⅓ innings.

The 23-year-old left-hander is not on the Dodgers’ 40-man roster. Yoshinobu Yamamoto could be moved to the 60-day injured list to open a roster spot for Wrobelski. Yamamoto has been out three weeks with a rotator cuff strain and is not expected to start a throwing program until late next week, according to Roberts.

KELLY REHAB

Veteran reliever Joe Kelly made his second appearance for Class-A Rancho Cucamonga on a minor-league injury rehabilitation assignment Friday night.

Kelly entered in the fifth inning and gave up a single then walked a batter before getting a strikeout and a double-play grounder. Kelly threw 13 pitches in his inning after throwing just five in a scoreless inning in his first rehab outing.

Kelly has been sidelined with a shoulder injury since May 5.

Dodgers relievers covered 14⅔ innings over the first four games of this homestand, so the Dodgers swapped out arms in the bullpen again Friday. Left-hander Nick Ramirez was returned to Triple-A Oklahoma City and right-hander Gus Varland was recalled.

Brewers (RHP Freddy Peralta, 6-4, 3.83 ERA) at Dodgers (LHP James Paxton, 7-2, 4.28 ERA), Saturday, 4:15 p.m., FOX (Ch. 11), 570 AM

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Walk-Off Wagers: MLB Best Bets Today (Trust Paul Skenes, Patrick Corbin Undervalued on Friday)

Peter dewey | jul 5, 2024.

Looking to keep the holiday weekend rolling with some MLB best bets? 

There are 15 games to dive into on Friday, July 5, and I’ve circled a few of them for my best bets. 

I’m eyeing a pair of young pitchers to lead their teams to wins as short favorites, as well as a strikeout prop for a veteran lefty who hasn’t exactly pitched well in 2024.

Let’s break all of these picks down!

MLB Best Bets Today

Pittsburgh pirates moneyline (-130) vs. new york mets, cincinnati reds moneyline (-115) vs. detroit tigers, patrick corbin over 3.5 strikeouts (-110).

Odds  via DraftKings Sportsbook .

Paul Skenes is on the mound for the 10th time in the 2024 season on Friday, and the Pittsburgh Pirates are slight favorites in a matinee matchup with the New York Mets. 

I'm rolling with the Pirates rookie to earn another win on Friday, as he’s 4-0 and the Pirates are 6-3 straight up in his nine starts this season.

Luis Severino gets the ball for the New York Mets, and he's been solid in 2024 -- posting a 3.42 ERA -- but the Mets are just 8-8 in his 16 outings.

Skenes has been red hot, allowing one or fewer runs in four straight starts. Plus, the Mets have dropped a couple games in a row, potentially a sign that they’re coming back to earth after a great close to June. 

Trust Skenes to get the job done at home. 

This is a rare spot where I’m fading the better starting pitcher, and that’s because Detroit has not been able to back him up this season. 

Detroit Tigers starter Reese Olson (3.32 ERA, 2.90 FIP) has been the better starter in this matchup with Carson Spiers and the Cincinnati Reds, although Spiers is 2-1 as a starter this season and has won back-to-back starts. 

The Tigers are just 3-13 (!!) when Olson is on the mound this season, a shocking record considering how low his ERA is in 2024. 

I'll take a shot on Cincy -- especially at home -- on Friday.

Is Patrick Corbin undervalued against the St. Louis Cardinals?

The Washington Nationals starter has picked up four or more strikeouts in five of his last six starts, including five or more K’s in three straight outings.

He has a favorable matchup in this game, as St. Louis is 18th in the league in strikeouts per game (8.51) this season and ranks 29th in batting average against lefties (.217). 

Corbin has been knocked around in the last few seasons, but he has cleared this prop in 10 of his 17 outings in 2024. Don’t sleep on him against an offense that stinks against lefties.

Odds refresh periodically and are subject to change.

If you or someone you know has a gambling problem and wants help, call 1-800-GAMBLER.

PETER DEWEY

Peter is a senior editor for Sports Illustrated Betting. He has worked as a writer and editor for BetSided, NBC Sports, the Connecticut Sun and the Meriden Record-Journal covering the NBA, WNBA, NFL, MLB, and more. A New York City resident, he is a hoops fanatic with a soft spot for his New York Knicks.

Follow @peterdewey2

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What Makes the U.K. Exit Poll So Trusted

The first indication of results on British election nights has earned an unusually high reputation. Those behind it say that’s because of a big decision 20 years ago.

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By Ademola Bello

Reporting from London

Follow our live updates on the U.K. election .

On election night, when can you start to know who’s won?

In Britain for the past two decades, there’s been a startlingly good answer just after the polls close, at 10 p.m.

That’s when three major broadcasters reveal the results of the national exit poll. The work of a team of statisticians and political scientists who swing into gear a few hours earlier, it has in recent years produced an increasingly accurate picture of the election results before the votes have been counted.

In the past five British general elections, the exit poll has predicted how many of the 650 or more parliamentary seats would be claimed by the winning party to within an average of four seats. Last time, in 2019, it had the winning party’s total just three seats out.

Here’s a guide to what to expect, and how it works.

Let’s start at the beginning. What’s an exit poll?

It’s a survey of voters soon after they’ve voted. The British one looks for voters literally as they exit a polling place: Fieldworkers ask over 20,000 people at about 130 voting sites across the country to fill in replica ballot papers. Since 2005, there’s been a single exit poll at each British general election, paid for by three major broadcasters, the BBC, ITV and Sky.

How have the British ones been so accurate?

They weren’t always. In the 1992 general election, the BBC’s exit poll predicted that no party would win an overall majority of parliamentary seats, before early results quickly showed that the Conservatives were on course to retain control. Exit polls in some earlier elections were even further off.

Exit polls have become increasingly accurate in Britain

Number of seats won by the largest party

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MLB roundup: Jose Miranda ties consecutive hits mark in Twins' win

Jose Miranda matched the major league record for consecutive hits and rookie Brooks Lee clubbed his first career home run as the Minnesota Twins beat the visiting Houston Astros 9-3 on Saturday.