TheRealtuBl,ueBookof Cdifornia

no, c"lilorniaTrust
Companies
Function

L. H. RosEBEp,Ry
Yice Ptesident
Aecxrit!1 ftdt & Aarings Rahk
Los Angelcs
 The Re1,ltqBl "eBoolcol Caklomia 207

H ow CalifbrniaTrust CompaniesFunction
in Real Estate Transactions
B3t L. H. RoSEBERRY

Co.l,ifonti,a,Lego,l Requirements-Actirv as Erecutor-

Untler "Liuitzg Trltsts"-Subdil)ision Tntsts Co-operdth)e
Ounership-Trust DeedA-Real Estate Bowts Lokg Term
Ground Leas6-Truat Companies the Natx,ral Al,Iies ot
Re.iItoB.

LTHOUCH corporations in Califomia have, for many years

past, upon compliancewith dgid qualifications,b€en author-
- -
ized to executetrusts, it is orly lvithin comparativelyrecent
years that.t}ley have.assumedpublic
.promin€nce.Few peoplefully
underslandihe plan of their organizationor their legaislalus. In this
state no corpomtiou caD act as executorof wills, administrator o{
estates.guardian,irus{ee,or in any other-fiduciaiycapacityunlil
it has met very exactinglegal requirements,all irtended to place its
activitiesunder careful public supervisionby the State Supedntend-
ent of Banks and to insure the saf€ty of prcpelty committedto its
care,and a high classtrllst service.
CALIFORNIA LEGAI] BEQUIREMDNTS

In California, trust companies,or trust departmentsof depart-

mentalbanks,are devotedexclusivelyto trust business.They are not
banksof deposit and can iDdulgein no oth€I oper-ations.They are,
therefore,immune from the hazardsof commercialbanking or other
businessenteryrises, which gives absolute assur-anc€of their safety
and the conscieDtious specializedadministration of property com-
mitted to theil care. They are required to deposit bonds or other
securitieswith the State Treasurer (varying from 9100,000_00 to
$600,000.00, depending upon the city wherc they operate and the
volumeof their trust business),as secudty for the faithful peform-
anceof their trusts. Their pr€sc bed capital must be set apalt to
their trust depa*m€nts for the sole benefit of the creditors thereof.
All securitiesand property held by them in each trust must not be
coDmingled but must be carriedseparateand distinct, both physically
8nd on their records. In addition to these financial safeguerdsth€
lawthrcws every possiblelegal immunity arcund property committed
to tlem. They are not only examined by their own auditing force,
underconsrant scrutiny by the patrons who have entrusted property
to them, but they are subject to unannounced, periodical and. rigid
by t}le State Superintendentof Banks. As a result of
208 El,ueBook ol Colilon iq,
Tke Rea,l,tV

all these administrative and legal safeguards there is not disclosed

on the recordsof the Supe ntendentof Banks,sincethe enactmentof
a Bank Act in 1909,a single instancewhere the beneficiaryof any
trust administeled by a Califomia trust company has sufiered the
loss of one dollar through any neglect, misappropdation or fault
traceable or legally chargeable to the trust company. This is an
amazingand remarkablerecord, unparalleledby any other business
institution in this state. Gmdually the knowledgeof this supreme
safety factor ir trust companiesis spreadingamongstthe peopleof
this state and is p€rhaps the lalgest single cause fol their rapid and
permanentgrowth.
SNRVICES DXPANDINC

Formerly the servicesof these companieswere connnedlargely

to executorshipsunder wills and trusteeshipsunalerbond issues,but
the possibilitieso{ their use in other types of businesstransactions
has becomeso satisfactodly realized and widely used that the fidu-
ciary opelationsof these companiesare spreadinginto many other
useful lines. Ir this state, where real property is such a substantial
and active part of our physical assets,the relation of trust companies
to real estate operations has becomemost pronounced.
ACT AS EXECUTOB
Po$ibly the most widely known function of a trust companyis
to act as executorof wills of deceasedpersons. In Suchcapacity it
becomescharged,during the probate prrceedings,with the manage-
ment, sale and general adn'dnistTation of farms, orchards, manufac-
tudng plants, hotels,apartmenthouses,office buildings,and all oiher
types of real property. To meet the multitudinous requirementsof
such prcpertiesthe larger trust companieshave a specialreal estate
organization in charge of an experienced real estate officer'. Al1
propelties are carefully surveyeal and checked, both as to amounts
and character of insurance,rental values are re-appraised,repairs,
alterations, and general upkeep closely watched, and both the prcsent
value and future possibilities of the proper-tycarefully estimaied.
Outside realtors are usealalmost exclusively in the consummation of
salesand impoltant leases. It is of prime interest to the estatesthat
are so handledthaL a closecodpcratingsorking arrangemcnrbe ron- -
stanlly maintained wilh {he real pslate profession. Experipncehas
shown this to be so.
ACTING UNDER ..LIVINC,, TEUSTS
Another activity is the handling of real property under so-called
"living, or "voluntary" trusts. Theseare merely trusts createdby
pe4ons while they are living, for the management,by a fuustee of
real or personalpropertyiunder almostevery conceivable plan and for
terms extendingfrom a few months to many years. Und€r someof
these trusts the bare legal title to real prQperty is conveyed to the
trustee withdut any active duties of managementor conhol, ttut
merely for the purpose of conveying, leasing or othehryisedisposing
of the same upon the written directions of the Trustor. If such a
trust is unterminated at the death of the Trustor the property can, if
 TlLene(dta Bl,ueBoolcol Calilorkid. 209

the trust so provides,be conveyedto his family, or others, after his

death,without the necessityof probatered tape or costs.
SUBDIVISIONTRUSTS
ln o[her typesof 'living'lrusL real propeltyis con\eyedl,othe
trustee for a gTeat variety of lurposes, coupledwith either limited
or lull powersof malagementand control,dependinguponthe desires
of those creating such trusts. Under this category comesthe well
known real estat€ subdivisiontrust, so universallyused in Southern
Califomia,for the saleof residentialand businessiots in subdivisions.
As indicating the volume of these trusts in the vicinitv of Los
Angeleswhich havebepncommittedto trusl companies il is'intprest-
ing to note tlat covering a period of eighieen months, beginning
Jam)ary1, 1922,and ending Jute 1, 1923,305 separatereal estate
subdivisions,embracing over 110,000sepante lots rrere placed on
sale and that substantiallyall of them were sold. Ferv real estate
firms will handle subdivisio[s exceptingthrough a trust company,
and the buying lublic has come to make it almost a condition of
purchaseon contract that the trustee signing the conkact shall be a
rrust company.
CO-OPERATIWOWNEIRSHIP
There has rccently sprung up the practice of using corporat€
trustees to take title to and handle "own your own apartment" or
''own your
own office" buiidings. It is essential in such trusts, vhere
the ownership of the building is divided into a large number of units
and scatterpdamongstas many differenl persons,that rhe jitle 1o the
whole property be cen{ralizedin a single irustee lvho representsall
separate ownerships in their common afiairs, such as tle payrnent of
taxes, Daintenance of insurance, general care and upkeep of the
building,rranslers of owner.hips of each ut)it, mortgage or bonded
debl on thp wholp prope y, eLc. No individunl lruslee is as ideally
equippedfor such a necessary selvice as a qualified corporation,

tBUST DEEDS
I'hese companies are almost universally and exclusively used as
trustee und€r Trust Deeds to secure notes. In some Darts of this
state the use of Trust Deedsto secure loans on real property is more
universallyusedthan real estatemortgages.
NEAL DSTAM BONDS

Realestatebondissuesare now issuedalmostexclusivelythrough

corTorateirustees. In fact the public buying such bonds have come
'to regard corporatetrustees as an essentialof a good,well guarded
secudiy, and it is doubtful whether a bond issue under an individual
trustee would meet with much favor from the majority of discriminat-
ing bond buyers-
LONC TERM CIIOUND LEASES
- -The advantagesof using a coryorateirustee as the depositaryof
rentals anal insurance policies unaler long term gaound leases is so
generallyconceded that tle useof individualsin suchcasesis obsolete,
210 The Realt! Blue Book ol ColiJurIi/t

PRIVACY
OFTRANSACT1ON
Whenever it is desirable, for. an)'reasor, that the identity of the
real 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, shall
remain eithel tempor':rr.ill' or. perm:rnentl)' undisclosed, a corporate
trustee is used.
The privacr'' oL trust compan]' operations is onc of their essential
attributes and one ol lheir nost attractive features to thc nublic
g e n e r . r l l y .U r r d c "t h A l i , \ ' u f I l r i . n i . e i n . a x i " r e r , , ' ,I a r m s o l a l r d
parties inter'€sted in prit,tte lrusts h:Lndledbv col.porate trustees is
rnade conlidential and cannot be disrlosed to any excepting intelested
persons ror to any court exce'ptingir1 a dircct legal l locccding affect
ing the tNst. This is a verl attractive fenture in the ser-viccof thcse
companies and largeb gorer.Irsthc melhorl of cleatirg plivate trusts.
The accept€d Uocedule 1'or.crealillg such trusts is to convey to the
tfust companj'the title lo proDer'ly, lo be husteed by a dced or assigrr-
ment absolute in lorm. wilhout aDv indicalio or disclosul'eol a trust
in the instrument of coryeyanc€. Wher this is recorded the existerce
of the trust is not sho{n on the lccolds. The tlust conpany then
executes back to the TIustoIS its wlitten "Dcclaration of Trust."
iternizirlg thc lr'opeltv coDlcved into the tlust and settins lolth all
the terrs and conditioDs upon $'hic\ it is hcld or is to be disDosedof.
IJxpedencc has deternincd that this m€thod is much mole satisfac-
toly from evcry stnndpoint than the plactioe of jncorpolrting the
existelce and all the terms oI the tlust into the instrunent which
coDveys the property to thc Trustce, \rhich \'!hen lecorded, makes a
complete 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,iD th€
acceptance of trust businoss, to calefull]' safeguarcl the rights of
persons intclcstcd therciD. as \\'ell ff its o{'i1 reputatjor lol fair deal-
ing and caleful management befole thc public. Therelore, the stand
ing of parties oflelirg trlst business to such co panies is usually
carefully investigated and must be tholoughly satis{actolJ. The trust
itself and its pulpose nnrsl be legal, elhical, susceptible of reasonable
success,and rot wholly speculitive. 'l'he ir)tercsts and ghts of all
patties allected theleby are c:rrefully lr'cscr-vcd. The public is not
only growing to rely upon this form of protection but ir many casas
to require it befo].eputchasinssccuritiesofferedon the market.

USE OF CORPORATE'TI'USI'DES ]]OIULAR

The gro\l'th of trust conlp^nics in Califomia and their large

diversified use iD the handhrg, nnagemcnt and care of ,-eal property
in coDjunction $.ith n1e bels of the real estltc pmfession seems now
assurcd and thele is evelJ leasor \r hl' it should. Although there are
cases where iudividual truslees m?ry be rnorc desilable, for. pe$onal
Ieasons, in handling some types of propclty these casesare glowing
mol'e rare alrd the wisdon of using coryonte trustees iD all cases is
becoming demonstlated. It is orll)_ necessary to obseNe their attri
butes as an ideal fiduciafy iD order. to appreciate this. Such com-
panies have Dractically x pelpetual oxistence,do not dje. do not travel,
 The Rea,ItU Bhe Book ol CalifonLLi

do not become insaDe nor incompetent, do not imperil trust property

committed to their_care by a failur.e or dishonesty, have not only lotrg
experiencejn handling property committed to them, but maintain ai
e\perienced.andhighly sperielizedorganjzatiot for {he speifi. pur-
poseoL_nandllng such propedy, are always on hand aL businesshours
aua dct Inrte plare, I ave no pfejudjcesagai||s{nor preferpnceslor any
one, poqlcssl1lrgecapital ard full frrl|n.ial responsibility,maintain
rlrp and burgrary prool lautts at,d safps,are undpr the direciion and
malagenrpn' oi rrained ofi(ers, and boards of directors oI Drov€n
expe errceand ability, have at.omnand and ar ihe lowpst prices
cnol.e rnva.lmpnts for {r st fu ds, ha\p neithpr lemD[aiion nor oD_
porl,unrt)Io speculate$rrh rrusr properry: their.judtmenl iI detei._
mrnlng tlr,sIAss p|oblems is the colle.riva Judgmanrior a gfnup of
successfulmen and not that of an individual; have a large fu;d de;os_
ited wilh the Slate Tj"Frsurpr.rogualanrepthe fai,hfut pcr.formanca
or t herr dutres.:.a
re go\?rned by !pecial Iaws regulajing their.conducr;
are supervlspdby thc Stitp Banking Den^rrment,and Lhpir starus ln
thiE state is ihat ol a quasi-publiccorpo|ario , subjecr. under ihc
pollcppowers ol lhe stalc, io all forms ot .on{rol and reEula{jonb\.
the legislatule in the co du.l of rheiI businessand the salpguardin;
' '-
of the interests of thos€ who entrust property to their. car.e.

NATURAL ALL1ES OI' REAI]TORS

There is no businessinstitution in this state with which realtors
colnpin more constentand confidentialcontactthan v/ith trust com_
panies,nor is there any other institution more sympatheticwith them
nor fields any mor€ valuablesen'ice in their oDeralions. Trust com-
paniesand realtorsare natur.alalliesand ohotld(lospl)synchronizp
their businessactivities. An intimate knowlealgeof tiust company
organizationand servic€should be a necessarypalt of the businesi
equipment of cvery su.resslularrdqualifiedreal e!rareoppralorin
Califomia. Il raaltorsin 'heir'divefspbulinps!aclivir:es_would use
trust compani€smore it is safeto pred:ct the volum€of their business
couldbe increased,the cost of their operationsreduced,and the satis-
factionof their patronsassured. On the otherhand, trust companies
_them-
h the handling o{ their rcal proDertiesneedand shouldavail
selvesof the specializedand now well regulatedserviceof lealto$.