From the Desk of San Diego Probate Lawyer, Kristina R. Hess
Research and writing by Klint LeBlang
Real Property and the California Heggstad Petition
A revocable living trust provides an excellent estate planning tool regardless of an individual’s total assets and liabilities. This is based on a variety of reasons, avoiding probate the most common. However, merely setting up a revocable trust in California does not guarantee an estate will avoid probate. Rather, the person setting up the trust, the settlor, must perform certain actions to ensure the revocable trust will be fully enforced when the trust becomes irrevocable. Generally, a revocable living trust becomes an irrevocable trust on the death of the settlor. Therefore, the settlor has time after creating the revocable trust to ensure it was properly executed and will be enforceable after death.
One such measure is properly fully funding the trust. An unfunded revocable trust in California that becomes irrevocable is not enforceable. Although not difficult to do, many settlors fail to fund a revocable trust during their life. Maybe their attorney did not assist them in funding, or inform them of the importance, or maybe they passed away before they got around to funding the trust. It happens more often than we would like. Funding a revocable trust can be as simple as transferring assets in your name to in the name of the trust.
A simple example would be executing a grant deed to real property from your name to the name of the trust. In most instances, the settlor is going to be the trustee (i.e., the person in charge of managing the trust) and therefore this grant deed creates no real difference in the person’s life. That is, the settlor transfers the real property into the name of the trust and continues to use the property as before with no real change. Further, no consideration (i.e., money) is required (apart from the price of the grant deed) because the settlor is essentially transferring the real property to himself or herself.
What happens though when the revocable living trust becomes irrevocable and the trust is not funded? Does the trust fail? Or what if the trust is partially funded, but not all the settlor’s assets are in the name of the trust?
Although the answer depends on the client’s situation, a Heggstad petition provides a possible solution to an improperly funded trust. Commonly called a Heggstad petition, the proper method in San Diego and around California is a petition for an order to confirm trust assets under Probate Code section 850(a)(3). The petition got the name Heggstad based on the Estate of Heggstad case in 1993 ruled on in the California Court of Appeals. This sentinel case, like most Heggstad petitions today, involved real property not properly transferred to a trust before the settlor’s death. The California Court ruled that a separate deed of trust is not required when the owner of real property executes a written declaration of trust and names himself or herself trustee. The California legislature subsequently codified the Heggstad case in Probate Code section 850, hence the name.
A typical scenario where a Heggstad petition is used is when a settlor titles most, but not all, assets in the name of the trust. That is, Schedule A of the trust will list out trust assets most of which are titled trust assets. However, even if an asset is listed on Schedule A, this, in of itself, does not make it a trust asset. A Heggstad petition can remedy this solution as listing assets on Schedule A shows the settlor’s clear intent of transferring their assets to the trust.
While Heggstad petitions usually involve real property, the California Court has extended their use to personal property. One such example is found in the case Kucker v. Kucker, another California Court of Appeal’s case. Here, the court held a general assignment of financial property to a trust is valid even if the property is not identified. The Kucker case involved stock as compared to real property. Still, the court allowed a Heggstad petition as a means to transfer the property to the trust.
The ever expanding view of the Heggstad petition has allowed for more flexibility related to remedying a fully unfunded trust resulting in less costs and stress for a grieving family. Further, it provides a quick and effective solution to a family at a time when their thoughts should be with their loved ones.
If you think you can benefit from using a Heggstad petition or have questions regarding the process and are in San Diego or the surrounding areas, please contact Kristina Hess at www.KRHESS.com or by calling 858.461.6844.
Please note that this blog is not intended to provide legal advice and is for general informational purposes only.
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Kristina R. Hess, Esq.