California Courts Rule on Funding of Revocable Trusts

Having a revocable trust is an essential part of good estate planning. However, it doesn’t stop there…good estate planning also encompasses very thorough planning and decision making about which assets are to be held in the revocable trust and the process for which to transfer those assets to the trustee of the revocable trust.

One of the benefits of using the revocable trust is that upon the death of the property owner the property passes by operation of law to the next named trustee, to be managed and/or distributed as the property owner established in the terms of the trust without the involvement of a probate court or other court procedures. This saves significant amounts of money and time and keeps the nature and scope of the assets private.

The problem is, what happens when a property owner dies before transferring those assets intended to be held in trust to the trustee. In most cases the remaining family members had to probate the will if other means were not available to handle the distribution of the property. One of the most common assets often left out the trust is real estate. Or in some cases, parties will prepare a trust, convey the house to the trustee and later on refinance their home mortgage. Quite often the mortgage lender would require that the home be conveyed out of the trust and the loan closed in the owners name individually. The mortgage officers always tell their borrowers to have the house conveyed back into the trust after the escrow closes but unfortunately that doesn’t always happen and this is not discovered until the property owner has passed.

Fortunately, the California Court of Appeal issued a ruling in 1993 providing some relief for those who failed to convey property to their revocable trust before passing in the case Estate of Heggstad (1993) 16 Cal.App.4th 943. In that case, Mr Heggstad executed a revocable trust and attached to the trust a Schedule A, specifically identifying property that was to be held and owned by the trust. Included in the Schedule A were several pieces of real estate that were identified with either an address or other descriptive information. During his lifetime, Mr. Heggstad never signed a separate deed conveying the parcels of property to his revocable trust.

After his death, disputes arose as to whether the real estate was held in trust or not due to the lack of a separate deed. Essentially, the Court ruled that because Mr. Heggstad named the properties in his trust, sufficiently described them and expressed his intent that they be held in trust, the lack of a deed did matter as relevant principles of law dictated that the property was in fact owned by the trustee. This has led to many attorneys filing “Heggstad Petitions” on behalf of their clients when someone dies without transferring real estate to their revocable trust as long as it was sufficiently identified in the revocable trust document as being held in trust.

While the Heggstad Petition is very useful it only works when the property is real property that was never conveyed to the trustee and does not apply when the property at hand is personal property. However, in 2011 the California Court of Appeal handed down another decision that expands the underlying premise of the Heggstad case and applies it to personal property with a few twists. The case, Kucker v. Kucker involved a property owner that executed a general assignment, assigning all of their personal and real property to their trust. Upon Mr. Kucker’s passing his heirs discovered several shares of stock that were never assigned to the trustee during Mr. Kucker’s lifetime. Therefore, his heirs filed a petition with the Superior Court seeking a determination, in part, that as a consequence of Mr. Kucker signing a general assignment, assigning his personal and real property to the trustee, the stock was actually held in trust even though a separate assignment, specifically identifying the shares was never signed. In part, the Court held that a general assignment, duly executed buy the property owner is sufficient under law to act as an assignment of the property to their revocable trust.

As a result of the Heggstad and Kucker cases, practitioners have strong tools for assisting clients in avoiding full probate administration when clients have failed to convey property to themselves as trustee. Heggsatd can be used for real property when it is specifically identified in the trust document and Kucker can be cited when personal property is generally described in the trust document or in an generl ssignment. However, until recently, these tools were not much help when the client owns real property that was never deeded to the trustee and only mentioned in the trust and not specifically described well enough to determine the property without referring to extrinsic evidence outside of the trust document.

This month, the California Fourth District Court of Appeal has ruled in the case Ukkestad v. RBS Asset Finance, which expands and clarifies on the holdings in the Heggstad and Kucker cases. In this most recent case, Mr. Ukkestad owned two pieces of property that were assigned to the trustee via a general assignment in the revocable trust rather than a separate deed. Furthermore, the trust assignment did not identify the pieces of real estate with specific identifying information. After his death, the parties filed a petition with the Superior Court seeking an order that Mr. Ukkestad’s two pieces of property were held in the trust despite the fact that a deed was never signed based on the holdings in the Heggstad and Kucker cases. Expanding on the prior cases the Court has now held where evidence outside of the trust exists, it can be used to specifically identify real property that is subject to a general assignment and thus held in trust in the absence of a deed.

While these cases are beneficial they still require loved ones to hire attorneys and file petitions for relief and should not be relied upon when undertaking estate planning. Taking the extra time to adequately address trust funding and other techniques for avoiding probate courts will make settling your estate that much easier for those who are left behind and charged with responsibility of doing so.

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