California Real Estate Lawyers Blog
It is common for people to hold their investment properties in their revocable family trust. In a Southern California decision, two trustees, Tepper & Presta, entered several partnership agreements to invest in real estate. The partnership agreement provided “upon the death of a Partner, the Partnership shall purchase the interest of the deceased Partner.”
Mr. Tepper died, and Presta wanted to buy out his interest, but his widow refused, claiming that the Trust itself was the partner, and the trust was still alive.
The court looked at the language of the agreement, which states that it is entered by Presta as Trustee of trust P and Tepper as trustee of trust T. It found that the mistake in the widow’s argument was to treat the trust as an entity, like a corporation. But, it is established under California law that a trust of this type is merely a relationship by which one person holds property for the benefit of some other person. An ordinary trust is not an entity separate from its trustees. A trust can neither sue nor be sued in its own name; it is always the trustee who is the party. Thus, in this case, the individual men were the partners, and the widow had to sell her interest.
The court did make the suggestion that, if the trustees wanted to indicate that the trusts themselves were the partners for purposes of the agreement, they could have said the agreement was entered between “the P Trust through its Trustee Presta, and the T Trust through its Trustee Tepper.”
The court noted several times that the parties prepared the agreements on their own, started with one form partnership agreement, and did minor revisions (changing the names) for each new partnership. Unfortunately, we will never know if they considered this issue, because their drafting was left ambiguous.
Presta v. Tepper (10/28/2009) Cal 4th DCA G040427