How Heggstad Sweeps Assets into Trusts

20 Jan, 2019//Posted by : admin//Category : Uncategorized

When clients are planning revocable trusts, and again, while they are signing, and again, after they are mailed the recorded deeds, etc., we always take care to explain that trusts are fairly useless and inoperative without anything in them. They are a shell until properly funded with assets. In Latin, the trust must have a corpus, meaning, a body. If there is nothing belonging to the trust, it is of no practical effect. It is of utmost importance to the trust estate plan that the deceased person owns nothing but personal effects.

The primary purpose of the revocable living trust estate plan, with accompanying pour over will(s) is to avoid a probate court administration, with all delay and costs that entails. In California, if an estate is over $150,000, and its assets are “vested” (titled) in the decedent’s name, they have to go through probate court. If the decedent has made sure his or her assets have been transferred to a trust, the terms of the trust that owns the assets controls their disposition, not a probate judge. Its that simple.

Unfortunately, even with our aforementioned lectures, spiels and reminders to our clients, they defeat their own intentions. In other words, they fail to make certain that their assets are in the trust name before they die. if they are not already designated to beneficiaries upon death, they will have to undergo probate administration.

Since real estate vested out of the trust is a sure fire way to fall int the probate trap, it is our practice to take on responsibility to prepare and record “trust transfer” deeds for any realty to make certain those assets are put into the trust. Financial accounts that are titled out of the trust are usually not difficult to get in, unless they are over $150,000 (see previous blog relating to small estate administration).

Despite our best efforts at educating clients about trust ownership, sometimes they fail to pass the test, even with real estate we have transferred to trust vesting for them. An example of this situation is when a trustor refinances their home or other real estate. Banks and other lenders are reluctant to loan money to a trust entity. Therefore, it is common for them to insist that the property be taken out of the trust name, deeded back to the individual name as a condition of loan escrow. The bank may tell the borrower/client that they can just reconvey the property back to the trust after escrow closes, but they never help the borrower do that, and all is forgotten when the deal is done. Then the borrower dies, with the property still in their name. With bank accounts, sometimes a customer forgets or is never asked whether they have a trust or want title therein. Fortunately, there is an antidote to this estate plan poison.

The 1993 case of Estate of Heggstad (1993) 16 Cal.App. 4th 943 comes to the rescue when individuals have a trust, but leave their real property or other valuable financial assets out of trust. As long as the trustor has declared their intention by way of a “general assignment” of all assets to the trust and/or a reference in, or attached to, the trust document to the property, a Court, under the ruling in the Heggstad case, will grant a petition for an Order putting title in the trust, where it belongs. The standard “pour over” Will executed by a decedent, which directs transfer of their estate to the successor trustee of their trust, provides further evidence to the court of this intention.

While there are delays, fees and costs involved in having an experienced probate lawyer draft, file, and argue the Heggstad petition, they are quite significantly less than undergoing a full blown probate administration to accomplish the transfer to the trust, and on to distribution to the anxious beneficiaries.

While it is always preferable for a client to follow instructions and remember that they are a trustor and usually a trustee, and should make sure their property is inventoried in their trust, even if they fall off the trust wagon, there is Heggstad to pull them back on, and sweep their baggage back on board as well.