How California Trust Companies Function by L.H. Roseberry

8/14/2019 How California Trust Companies Function by L.H. Roseberry

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TheRealtuBl,ueBookof Cdifornia

no, c"lilorniaTrustCompaniesunction

L. H. RosEBEp,RyYice PtesidentAecxrit!1 ftdt & Aarings RahkLos Angelcs


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TheRe1,ltqBl "eBoolcol Caklomia 207

H owCalifbrniaTrust Companies unctionin Real Estate TransactionsB3t L. H. RoSEBERRY

Co.l,ifonti,a, ego,l Requirements-Actirv as Erecutor-Untler "Liuitzg Trltsts"-Subdil)ision Tntsts Co-operdth)eOunership-Trust DeedA-Real Estate Bowts Lokg TermGround Leas6-Truat Companies the Natx,ral Al,Iies otRe.iItoB.LTHOUCH corporations n Califomia have, for many yearspast, upon compliancewith dgid qualifications,ben author-- - ized to execute rusts, it is orly lvithin comparatively ecentyears hat.t}ley have.assumed ublic.prominnce.Few people ullyunderslandhe plan of their organizat ion r their legaisla lus. In thisstate no corpomtiou caD act as executorof wills, administrator o{estates. uardian, rus{ee, r in any other- iduciaiycapacityunl i lit has met very exacting egal requirements, ll irtended to place tsactivitiesundercareful public supervisionby the State Supedntend-ent of Banks and to insure the safty of prcpelty committed o itscare,and a high class rllst service.

CALIFORNIA LEGAI] BEQUIREMDNTSIn California, trust companies, r trust departmentsof depart-mentalbanks,are devotedexclusivelyo trust business.They are notbanksof depositand can iDdulge n no othI oper-ations.They are,therefore,mmune from the hazardsof commercial anking or other

businessenteryrises, which gives absolute assur-anc f their safetyand the conscieDtiouspecializedadministration of property com-mitted to theil care. They are required to deposit bondsor othersecuritieswith the State Treasurer (varying from 9100,000_00o$600,000.00,ependingupon he city wherc they operate and thevolume f their trust business),as secudty for the faithful peform-anceof their trusts. Their prsc bed capital must be set apalt totheir trust depa*mnts for the sole benefit of the creditorsthereof.Al l securitiesand property held by them in each trust must not becoDmingledut must be carriedseparateanddistinct, both physically8ndon their records. In addition to these inancialsafeguerds hlaw hrcws everypossibleegal mmunity arcundpropertycommittedto tlem. They are not only examined by their own auditing force,underconsrantscrutiny by the patrons who have entrusted propertyto them, but they are subject to unannounced,periodical and. rigidby t}le State Superintendent f Banks. As a result of


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208 Tke Rea,l,tV l,ueBook ol Colilon iq,all these administrative and legal safeguards there is not disclosedon the recordsof the Supe ntendentof Banks,since he enactment fa Bank Act in 1909,a single nstancewhere the beneficiaryof anytrust administeled by a Califomia trust company has sufiered theloss of one dollar through any neglect,misappropdation or faulttraceable or legally chargeable to the trust company. This is anamazingand remarkable ecord, unparalleledby any other businessinstitution in this state. Gmdually the knowledgeof this supremesafety factor ir trust companiess spreadingamongst he peopleofthis state and is prhaps the lalgest single cause ol their rapid andpermanentgrowth.

SNRVICES DXPANDINCFormerly the servicesof these companieswere connned argely

to executorships nder wills and trusteeshipsunalerbond ssues, utthe possibilitieso{ their use n other types of business ransactionshas become o satisfactodly realizedand widely used hat the fidu-ciary opelationsof these companies re spreading nto many otheruseful ines. Ir this state,where real property is sucha substantialand active part of our physical assets, he relation of trust companiesto real estate operations has becomemost pronounced.ACTAS EXECUTOB

Po$ibly the most widely known function of a trust company sto act as executorof wills of deceasedersons. In Suchcapacity tbecomes harged,during the probate prrceedings,with the manage-ment, sale and general adn'dnistTation of farms, orchards, manufac-tudng plants,hotels,apartmenthouses, ffice buildings,andall oihertypes of real property. To meet the multitudinousrequirementsofsuchprcperties he larger trust companies avea special eal estateorganization in charge of an experienced real estate officer'. Al1propelties are carefully surveyeal and checked, both as to amountsand character of insurance, ental valuesare re-appraised, epairs,alterations, and general upkeep closely watched, and both the prcsentvalue and future possibilitiesof the proper-tycarefully estimaied.Outside realtors are usealalmost exclusively in the consummation ofsalesand mpoltant leases. It is of prime interest to the estateshatare so handled haLa closecodpcrating orking arrangemcnrbe ron- -stanl y maintained wilh {he real pslateprofession. Experipncehasshown his to be so.

ACTING UNDER .LIVINC,, TEUSTSAnother activity is the handling of real property under so-called"living, or "voluntary" trusts. Theseare merely trusts createdbype4ons while they are living, for the management, y a fuusteeofreal or personalpropertyiunder almosteveryconceivablelan and forterms extending rom a few months to many years. Undr someof

these trusts the bare legal title to real prQperty is conveyed to thetrustee withdut any active duties of managementor conhol, ttutmerely for the purpose of conveying, leasing or othehryisedisposingof the sameupon the written directions of the Trustor. If such atrust is unterminated at the death of the Trustor the property can, if


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TlLene(dta Bl,ueBoolcol Calilorkid.

state the use of Trust Deeds o secure oans on real property is moreuniversally sed han real estatemortgages.NEAL DSTAM BONDS

Realestatebond ssuesare now ssuedalmostexclusivelyhroughcorTorate rustees. In fact the public buying such bonds have come'to regard corporate rustees as an essential f a good,well guardedsecudiy, and it is doubtful whether a bond issue under an individualtrustee would meet with much favor from the majority of discriminat-ing bondbuyers- LONC TERM CIIOUND LEASES- -The advantages f using a coryorate rustee as the depositaryofrentals anal insurance policies unaler long term gaound leases is sogenerallyoncededhat tle useof individuals n suchcasess obsolete,

209the trust so provides,be conveyed o his family, or others,after hisdeath,without the necessity f probate ed tape or costs.

SUBDIVISIONRUSTSln o[her ypes f ' l iv ing'lrusL realpropelty s con\eyed,o hetrustee for a gTeatvariety of lurposes, coupledwith either limitedor lull powersof malagementand control,depending pon he desiresof those creating such trusts. Under this categorycomes he wellknown real estat subdivision rust, so universallyused n SouthernCalifomia, or the saleof residentialand businessots in subdivisions.As indicating the volumeof these trusts in the vicinitv of LosAngeles hichhavebepn ommittedo trusl companiesl is ' intprest-ing to note tlat covering a period of eighieen months, beginningJam)ary1, 1922,and ending Jute 1, 1923,305 separate eal estatesubdivisions,embracingover 110,000 epante lots rrere placedonsaleand that substantiallyall of them were sold. Ferv real estatefirms will handle subdivisio[s excepting hrough a trust company,and the buying lublic has cometo make it almost a condition ofpurchase n contract that the trustee signing the conkact shall be arrust company. CO-OPERATIWOWNEIRSHIP

There has rccently sprung up the practice of using corporattrustees to take title to and handle "own your own apartment" or''own your own office" buiidings. It is essential n such trusts, vherethe ownership of the building is divided into a large number of unitsandscatterpd mongstas many dif ferenlpersons,hat rhe it le 1o hewholeproperty be cen{ral ized n a single rustee lvho representsal lseparateownerships in their common afiairs, such as tle payrnent oftaxes, Daintenance of insurance, general care and upkeep of thebuilding, ranslers of owner.hips of each ut) i t , mortgage or bondeddebl on thp wholp prope y, eLc. No individunl ruslee is as ideallyequipped or such a necessaryselvice as a qualified corporation,tBUST DEEDS

I'hese companies are almost universally and exclusively used astrustee undr Trust Deeds to secure notes. In some Darts of this


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210 The Realt! Blue Book ol ColiJurIi/tPRIVACY FTRANSACT1ON

Whenever it is desirable, for. an)'reasor, that the identity of thereal parties in interest ilho desile to arquire the fee to real property,or a lease thereon, or:L Ijght oI w:ry or easement lhereol'er, shallremain eithel tempor':rr.il l' or. perm:rnentl)' undisclosed, a corporatetrustee is used.The privacr'' oL trust compan]' operations is onc of their essentialattributes and one ol lheir nost attractive features to thc nublicg e n e r . r l l y .U r r d c " h A i , \ ' u f I l r i . n i . e i n . a x i " r e r , , ' , a r m so l a l r dparties inter'sted in prit,tte lrusts h:Lndledbv col.porate trustees isrnade conlidential and cannot be disrlosed to any excepting intelestedpersons ror to any court exce'pting r1 a dircct legal l locccding affecting the tNst. This is a verl attractive fenture in the ser-viccof thcsecompanies and largeb gorer.Irs hc melhorl of cleatirg plivate trusts.The acceptdUocedule 1'or. realillg such trusts is to convey to thetfust companj'the title lo proDer'ly, o be husteed by a dced or assigrr-ment absolute n lorm. wilhout aDv indicalio or disclosul'eol a trustin the instrument of coryeyanc. Wher this is recorded the existerceof the trust is not sho{n on the lccolds. The tlust conpany thenexecutes back to the TIustoIS its wlitten "Dcclaration of Trust."iternizirlg thc lr'opeltv coDlcved into the tlust and settins lolth al lthe terrs and conditioDs upon $'hic\ it is hcld or is to be disDosedof.IJxpedencc has deternincd that this mthod is much mole satisfac-toly from evcry stnndpoint than the plactioe of jncorpolrting theexistelce and all the terms oI the tlust into the instrunent whichcoDveys he property to thc Trustce, \rhich \'!hen lecorded, makes acomplete public disclosure oJ thc tlust and all its tcrms, $41ich mat",iD \thole of in palt, bc highly confidential.It js ure well kno$n polic], oi Catifornia tlust conrpaDies,D thacceptance of trust businoss, to calefull]' safeguarcl the rights ofpersons ntclcstcd therciD. as \\'ell ff its o{'i1 reputatjor lol fair deal-ing and caleful management befole thc public. Therelore, the standing of parties oflelirg trlst business to such co panies is usuallycarefully investigated and must be tholoughly satis{actolJ. The trustitself and its pulpose nnrsl be legal, elhical, susceptibleof reasonablesuccess,and rot wholly speculitive. 'l'he ir)tercsts and ghts of allpatties allected theleby are c:rrefully lr'cscr-vcd. The public is notonly growing to rely upon this form of protection but ir many casasto require t befo].e utchasinssccurit ies f feredon the market.USE OF CORPORATE TI'USI'DES ]]OIULAR

The gro\l'th of trust conlp^nics in Califomia and their largediversified use iD the handhrg, nnagemcnt and care of ,-ealpropertyin coDjunction $.ith n1e bels of the real estltc pmfession seems nowassurcd and thele is evelJ leasor \r hl' it should. Although there arecases where iudividual truslees m?ry be rnorc desilable, for. pe$onalIeasons, n handling some types of propclty these casesare glowingmol'e rare alrd the wisdon of using coryonte trustees iD all cases sbecoming demonstlated. It is orll)_necessary o obseNe their attributes as an ideal fiduciafy iD order. to appreciate this. Such com-panies have Dractically x pelpetual oxistence,do not dje. do not travel,


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The Rea,ItUBhe Book ol CalifonLLido not become nsaDe nor incompetent, do not imperil trust propertycommitted to their_care by a failur.e or dishonesty,have not only lotrgexperiencen handling property committed to them, but maintain aie\perienced.and ighly speriel ized rganjzat iot for {he speif i . pur-pose L_nandllnguchpropedy, are alwayson hand aLbusiness oursaua dct nrteplare, ave no pfejudjcesagai| |s{nor preferpncesor anyone,poqlcss 1lrgecapital ard ful l f rr l |n. ial responsibi l i ty,maintainrlrp and burgrary prool lautts at,d safps,are undpr the direci ion andmalagenrpn'oi rrained ofi(ers, and boards of directors oI Drovnexpe errceand abil i ty, have at.omnand and ar ihe lowpst pricescnol.e rnva. lmpnts or {r st fu ds, ha\p neithpr lemD[aiionnor oD_porl,unrt) o speculate rrh rrusr properry: their. judtmenl i I detei._mrnlng t lr ,s Ass p|oblems s the colle.r ivaJudgmanr or a gfnup ofsuccessfulmen and not that of an individual; have a large fu;d de;os_ited wilh the Slate Tj"Frsurpr.rogualanrep he fai,hfut pcr.formancaor t herrdutres.: .ae go\?rnedby !pecial aws regulaj ng their. onducraresupervlspd y thc Stitp Banking Den^rrment,and Lhpirstarus nthiE state is ihat ol a quasi-public orpo|ario , subjecr. under ihcpollcp owers ol lhe stalc, io al l forms ot .on{rol and reEula{jon \.the egislatule n the co du.l of rheiI business nd the salpguardin;of the interests of thos who entrust property to their. car.e.' '-

NATURAL ALL1ES OI' REAI]TORSThere s no businessnstitution in this statewith which realtorscolnp n more constentand confidential ontact han v/ith trust com_panies, or is thereany other institution moresympatheticwith themnor ields any mor valuablesen'ice n their oDeralions.Trust com-panies nd realtors re natur.al l l iesand ohotld lospl)synchronizptheir businessactivities. An intimate knowlealge f tiust companyorganization nd servicshould be a necessary alt of the businesiequipmentf cverysu.resslul rrdqualif ied eale!rareoppralor nCalifomia. I l raaltors n 'heir 'divefspbulinps!aclivir:es_wouldsetrust companismore t is safe o pred:ct he volumof their businesscould e increased,he costof their operations educed, nd the satis-factionof their patronsassured. On the otherhand,trust companiesh the handlingo{ their rcal proDertiesneedand shouldavail_them-

selves f the specialized nd now well regulatedserviceof lealto$.


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How California Trust Companies Function by L.H. Roseberry

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