Can a Trust Own Real Property?

The recent case of Boshernitsan v. Bach provided the answer to this question, and highlights an important rule in determining who is a landlord and owner of real property, the trust or the trustees of the trust.

Rimma Boshernitsan and Mark Vinokur (appellants) brought an unlawful detainer action against respondents Belvia Bach and four of her children (the tenants) in August 2019.

Appellants sought to evict the tenants under a provision of San Francisco’s rent control ordinance that allows a “landlord” to evict renters from a unit to make the unit available for a close relative of the landlord (the family move-in provision).

A rule of the San Francisco Rent Stabilization and Arbitration Board (Board) defines “landlord” for purposes of the family move-in provision as “a natural person, or group of natural persons, . . . who in good faith hold a recorded fee interest in the property.”

The tenants demurred to the complaint, arguing that their landlord is not such a natural person or group of natural persons because title to the apartment building is held by appellants’ revocable living trust.

The trial court accepted this argument, sustained the demurrer without leave to amend, and entered judgment for the tenants in December 2019.

In sustaining the demurrer, the trial court correctly ruled that a trust is not a “natural person."

But it was mistaken in assuming that appellants’ trust was the landlord. As a matter of law, only trustees—not trusts—can hold legal title to property.

Natural persons who are acting as trustees of a revocable living trust and are also the trust’s settlors and beneficiaries qualify as a “landlord” under the family move-in provision.

Accordingly, appellants were not barred from seeking to evict the tenants under that provision, and the judgment was reversed and the action remand for further proceedings.

Appellants own a two-unit building in San Francisco. They live in one unit, and the tenants rent the other. In mid-2018, appellants transferred title of the building to the Vinokur and Boshernitsan Living Trust Dated April 30, 2018 (the trust).

About a year later, they served the tenants with a notice of termination of tenancy, claiming an intent to move Vinokur’s mother into the tenants’ unit under the authority of the family move-in provision.

After the tenants declined to vacate the premises, appellants brought the unlawful detainer action against them. The complaint alleged that appellants hold 100% of the interest in the property and the title as trustees of the trust.

The tenants demurred, arguing that (1) the eviction was not being sought by a “landlord”, and (2) the notice of termination added requirements more onerous in various respects than those of the Rent Ordinance.

In response, appellants argued that they as trustees, not the trust itself, held title to the property. Thus, although admitting that a trust is not a natural person, they argued that they, a group of natural persons, were the landlord, not the trust.

The trial court sustained the demurrer without leave to amend and entered judgment in the tenants’ favor.

The court’s written order recited, The property is owned by a trust and not a "natural person." For purposes of the Rent Ordinance, a landlord is a "natural person" or "a group of natural persons." The drafters of the Rent Ordinance limited the definition of the landlord as stated above and excluded non-natural persons thereby.

Both below and on appeal, the tenants framed the primary issue as whether the term “landlord” includes a revocable trust established by natural persons who are both settlors and trustees of the trust.

The court of appeal agreed with appellants, however, that title to the building is held by them, not the trust.

Accordingly, the relevant question was whether appellants in their capacity as trustees qualify as a landlord for purposes of the family move-in provision, and the court of appeal concluded that they did.

 The settlor of a revocable living trust is the person creating the trust.

The trustee of a revocable living trust holds the property in trust for the beneficiary.

The Rent Ordinance defines “landlord” as an owner, lessor, or sublessor, who receives or is entitled to receive rent for the use and occupancy of any residential rental unit or portion thereof in the City and County of San Francisco, and the agent, representative, or successor of any of the foregoing.

Evictions under the Rent Ordinance further provides that for purposes of an eviction under the Rent Ordinance, the term "landlord" shall mean a natural person, or group of natural persons . . . who in good faith hold a recorded fee interest in the property.

Appellants argued that they, not the trust, held title to the building. They pointed out that revocable trusts have no right to sue or be sued, and they assert that the trust is inseparable from them as the settlors and trustees.

The court of appeal agreed that appellants as trustees “hold a recorded fee interest” in the building.

The recorded grant deed states that appellants “hereby grant to Mark Vinokur and Rimma Boshernitsan, Trustees, or their successors in interest, of the Vinokur and Boshernitsan Living Trust dated April 30, 2018, and any amendments thereto, their whole interest in [the building].”

Thus, the plain terms of the grant deed specified that the building’s title is held by appellants as trustees, not by the trust.

Even apart from these circumstances, the law of trusts confirms that the building’s title is held by appellants as trustees, because trusts do not themselves as entities hold title to property.

Unlike a corporation, a trust is not a legal entity.

Rather, a trust is a fiduciary relationship with respect to property.

When property is held in trust, there is always a divided ownership of property, generally with the trustee holding legal title and the beneficiary holding equitable title.

Furthermore, when settlors transfer property to a revocable living trust, there is even more reason to conclude that the property’s title is held by the trustees, not the trust.

Such property is considered the property of the settlor for the settlor’s lifetime.

 A revocable inter vivos trust is recognized as simply a probate avoidance device, and when property is held in this type of trust, the settlor and lifetime beneficiary has the equivalent of full ownership of the property.

The tenants argued that because Probate Code section 56 defines person” to include a trust and the Civil Code provides that “[a]ny person” may hold property in California (Civ. Code, § 671), trusts can own property.

The tenants failed to explain why the Probate Code’s definition of the term should be read into a Civil Code provision, particularly since the Civil Code contains its own definition of “person”—which does not mention trusts. (See Civ. Code, § 14(a) [“the word person includes a corporation as well as a natural person”.

The tenants also pointed to decisions supposedly establishing that “a trust has the capacity to own property.”  To be sure, some cases, including the two the tenants cited, have made general references to trusts “owning” property.

But those imprecise references were hardly compelling, particularly when the issue being discussed in those cases did not involve an ownership distinction between a trust and a trustee.

In Carolina Casualty, it was “undisputed” that revocable trust “owned” property, but settlor was effectively owner for purpose of insurance policy provision. 

In Piedmont Lumber, court’s statement that trust was an owner of the property based on public documents stating that trustees of trust held title.

Such comments do not overcome the bedrock principle that a trustee holds legal title to property held in trust.

Having concluded that appellants as trustees “hold a recorded fee interest” in the building, the court of appeal considered whether they are also “a group of natural persons” under that rule and thereby qualify as a “landlord”.

Although the tenants admited that appellants are natural persons, they contended that natural persons acting as trustees are not “natural persons.”

The tenants suggested that a trustee is not a “natural person” because a trustee takes only “representative actions . . . on behalf of a trust.”

But case law has recognized the distinctive status of a trustee who is, as both appellants were, also settlor and beneficiary of a revocable living trust.

In making this point, the tenants liken trusts to corporations, which also “can only act through human representatives.” Unlike trusts, however, corporations can hold title to property, and a corporate owner or corporate trustee clearly would not qualify as a “landlord”.

A corporation is not a natural person.

The unique status of a trustee who is also settlor and beneficiary of a revocable living trust puts to rest the tenants’ concerns about the ramifications of interpreting the term “landlord” to include such a trustee.

The court of appeal limited its holding to the situation in which a landlord is settlor, trustee, and beneficiary of a revocable living trust. Thus, the decision involved no risk of any exponential increase in people who could displace long-term tenants, as the qualifying “landlord” is fixed once the revocable living trust is created.

The order sustaining the tenants’ demurrer without leave to amend and the judgment of dismissal were reversed, and the matter was remanded with directions to enter a new order overruling the demurrer.

LESSONS:

1.         As a matter of law, only trustees—not trusts—can hold legal title to property.

2.         The settlor of a revocable living trust is the person creating the trust.

3.         The trustee of a revocable living trust holds the property in trust for the beneficiary.