Putting all appropriate assets into a Trust is important, but what happens in Trust Administration when assets have been left out?
by James L. Cunningham Jr, Attorney at Law
You want to have all appropriate assets put into a trust. I often tell clients to consider a living trust like a box with instructions written on the side. Assets, including real estate, bank accounts and brokerage accounts are put into the box. The writing on the side of the box instructs a person (called the “Trustee”) what to do with the items in the box after someone dies. Assets are “put” into the box by deeding the real estate to the Trust, and by changing account holders on a financial account. Since personal items like furniture do not have deeds or documents of title, the person’s Will, (called a “Pour-Over Will”) transfers those items to the trust.
What about Probate?
The question remains – what happens when an asset is not properly titled to the trust, or said differently, what happens when an asset is not “in the box”? The quick and unfortunate answer is that the trustee may need to open a court administered Probate. Probates can be protracted and expensive, and Probate avoidance is one of the primary purposes of a trust. There is however an easier and expedited court procedure in California which will transfer the assets into the trust so that the estate can be administered without further delay. This article outlines that process.
Funding a Trust
Transferring assets into a trust is called “funding the trust.” How would an asset not make it into the trust? First, it may never have been put into the trust. This can occur during drafting when the person or firm preparing the trust either does not provide trust funding as part of their services, or simply fails to follow through with the funding. Also, if a person is establishing a trust without the advice of an attorney, the trust may not get property funded. In other situations such a mortgage refinance, a bank may require that real property be removed from the trust. However, the property is often not put back into the trust after escrow closes. In any of these situations, the failure to title assets in the trust will cause expense and delay when someone dies. Worse yet, during this time, the trust beneficiaries will not receive their share of the trust.
Learn more in our article about Trust Administration.
Heggstad Petition
In order to address this problem, California Courts allow what is known as a Heggstad Petition. This Petition is named after the case, Estate of Heggstad, (1993) 16 Cal. App. 4th 943 which first discussed this concept. Using the Heggstad case as precedent, courts allow trustees to file an administrative petition asking that assets found outside of the trust be properly transferred to the trust. In order to do so, the person filing the petition must show that the specific asset is mentioned in the trust, and that the trust creator (called a “Trustor” or “Grantor”) intended that the property be in the trust. Courts will look to language in the trust specifically mentioning the asset.
In some trusts, the real property is not specifically mentioned. A recent case called Ukkestad v. RBS Asset Finance, Inc. (2015) 235 Cal. App. 156 loosened the requirement that the asset be specifically mentioned if the trust states that “all personal and real property…wherever situated” be held in the trust. Although the Ukkestad case makes the process easier, it is still preferable to have a specific reference to the assets subject to the petition. As Ukkestad is a relatively recent case from 2015, it can take time to see how other courts will interpret and implement this rule of law.
Situations with unfunded trusts can be complex and difficult for a trustee to navigate. Our firm has the experience required to assist with any number of problems or questions regarding your personal estate plan, assisting you as a trustee, and filing Heggstad Petitions.
Learn more about Heggstad, and other options in our complete article on Trust Administration.
What Do We Do as California Estate Planning Attorney Specialists If Assets Have Been Left Out of a Trust?
If assets have been left out of a trust, you may still have some options–although the best case scenario may no longer be available! Consult with a qualified estate planning attorney to get the best advice.
The lawyers and staff at CunninghamLegal help people plan for some of the most difficult times in their lives; then we guide them when those times come.
Make an appointment to meet with CunninghamLegal for California Estate Planning and Trust Administration. We have offices throughout California, and we offer in-person, phone, and Zoom appointments. Just call (866) 988-3956 or book an appointment online.
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We look forward to working with you!
Best, Jim
James L. Cunningham Jr., Esq.
Founder, CunninghamLegal
At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.
