Bay Area homes are increasingly bought as trusts. Here’s why it matters

Legal and industry experts told The Chronicle that most of these trusts are likely set up by individual families hoping to preserve their wealth for their descendants. But the data includes some corporate trusts, which have grown in popularity as investment vehicles for property in the Bay Area and beyond.

Trusts come in many forms, but fundamentally, a trust is an entity that holds property for an owner or “grantor,” with the end goal of transferring it to a third person. In the case of a family trust, for example, a parent would be the original owner, or “grantor,” and the beneficiary might be a child.

Paul Hitchcock, an attorney at asset protection and estate planning firm BarthCalderon LLP, said that an increasing number of families, often wealthy ones, are placing their home into trusts for “estate planning purposes.” Essentially, if a person’s home is in a trust when they die, the home can transfer directly to their descendants. But if they leave their home to their descendants in a will only, without placing it in a trust first, the home will have to go through probate court, a time-consuming and often expensive process.

Until recently, trusts had an additional benefit: They could help prevent a property’s tax rate from getting reassessed when it passed from the deceased person to their inheritors. This changed in November 2020, when a law passed that now requires the home to have its tax value reassessed even if it’s owned by a trust, unless the person inheriting it lives primarily on that property.

The data bears out Hitchcock’s belief that wealthy families are behind the lion’s share of trusts: As of 2021, the Bay Area ZIP codes with the largest share of trust purchases were concentrated in the region’s wealthiest areas, including Atherton, Portola Valley and Burlingame.

Additionally, Hitchcock also noted that some types of trusts, like land trusts, don’t require property owners to put their real names on the property, allowing owners to shield their properties from creditors or legal actions. Wealthy owners also tend to benefit more from these benefits, because they are more likely to have multiple high-value properties that might get targeted in lawsuits.

“Litigation is out of control today,” Hitchcock said. “Because homes are worth so much money in California, they are a big asset that people go after all the time.”

The data on purchases by trust provided to the Chronicle included San Mateo, Alameda, San Francisco, Contra Costa and Santa Clara counties. Of those five counties, San Mateo and San Francisco had the greatest share of trust purchases as of 2021. In both counties, about 13.5% of home purchases were made by a trust.

The increase in trust purchases doesn’t come from family buyers alone, according to Redfin. Though the company tried to exclude most types of corporate trusts from the data by scanning an ownership code on home deeds, many purchasers leave that ownership code blank, so a significant number of corporate trusts are likely included.

Corporate investors can take advantage of the trust structure in the same way that individual or family investors can — they can use them to avoid certain kinds of taxes, legal repercussions, and shield their identities.

Because property owners using trusts and other investment vehicles do not have to disclose their names on home deeds, tenants living in corporation-owned properties don’t always know who owns their building, making it more difficult for them to hold those owners accountable through legal actions or media exposure, according to Jyotswaroop Bawa, Chief of Organizing and Campaigns at the California Reinvestment Coalition (Cal Reinvest), a nonprofit advocacy group in Oakland.

A previous Chronicle analysis found that, like family trusts and unidentified corporate trusts, identifiable corporate investors have increased over the last two decades, from under 2% of all purchases to nearly 5%. When both trusts and identifiable corporate investors are merged, the share of homes purchased has risen from 3.6% in 2000 to almost 14% in 2021.