So you’ve spent a few thousand dollars engaging an attorney to develop and implement a revocable trust-based estate plan. However, you and your attorney forgot to fund the trust. Upon your death and because you forgot to fund your trust, does your estate have to be probated in order to transfer the property from your estate into your trust via your pour-over will? The answer to this questions may be, no, but it could also be yes.
In this all too common scenario, the answer to this question turns on the language of the trust. If your trust has a written declaration indicating your intent to include specifically named property into the trust, even if the property does not make it into the trust during your lifetime, then your estate may not need to be probated. This is because you may be able to rely on a Heggstad Petition.
The California Court, in a well-known 1993 case, held that a written declaration of trust by the owner of real property indicating an intent to include the property in the trust was sufficient to fund the property into the trust even if that property was not actually funded into the trust during the lifetime of the trust creator. Meaning, an unfunded trust was still valid and property could be moved from the deceased person’s estate into the trust without the need for probate of the estate; but if and only if, the trust declaration indicates that such property was specifically intended to go in the trust (despite the fact that it never made it into the trust).
Heggstad Petitions are complex and, as such, it is not recommended that a trustee or other person try a Heggstad Petition without the assistance of a California attorney. There are specific elements which must be established in order to convince a Court that the Heggstad concept applies and the burden of proof of persuasion is on the petitioner of a Heggstad Petition.
So a Heggstad Petition is a good solution to fix problems when the trust creator dies leaving the trust unfunded, but there are problems with relying on a Heggstad Petition alone. Why? Well when it comes to properly transferring property upon your death, such a declaration which is relied upon by the Courts may not be acceptable or recognized by title companies or transfer agents unless a Court order confirming the transfer is obtained. Heggstad Petitions are not cheap because there are attorneys’ fees, court costs, and filing fees, etc. associated with such petitions. Heggstad Petitions must be filed with the Probate Court of the County having jurisdiction to hear the case. The procedural rules in Probate Court are different and sometimes unusual and complex. The slightest mistake on a Heggstad Petition can be embarrassing and cause delay. Even if there is no delay in filing this type of petition, such petitions take time and ultimately delays trust administration and estate administration which may require additional work and notice to creditors and beneficiaries. If you really think about all of this taken together, although a Heggstad Petition can fix the problem of unfunded trusts, relying on a Heggstad Petition defeats the purpose of developing and implementing a revocable trust-based estate plan. The main purpose of developing and implementing a revocable trust-based estate plan is so that upon your death, your property will efficiently transfer to your beneficiaries without the expense and delay of needing to obtain approval from the Courts.
What do we take-away from the above downsides of a Heggstad Petition? In order to properly develop and implement a revocable trust-based estate plan, make sure you (or your attorney) funds your trust! Also, during your life when you acquire additional property after you have created your trust, make sure that after-acquired property makes it into the trust. This type of maintenance of your estate plan will save your family, your beneficiaries, and the trustee quite a bit of headache and expense in the long run.
Anyone facing the above issues should contact the Chilina Law Firm or another California attorney who focuses on estate planning, trust administration, or probate for a review of their estate plan and trust funding to avoid further issues.
Authored by Greg Chilina and Co-Authored by Karen Chilina
Chilina Law Firm, a Professional Corporation, is a full-service estate planning, probate, trust administration, business law, and real property law firm that provides a wide-range of advising, transactional, and litigation services to its clients from its office located in Atascadero, California. The firm’s attorneys represent individuals and business entities in an assortment of transactional and litigation matters involving estate planning (including trusts, wills, powers of attorney, and medical directives), probate, trust administration, as well as general business law, contracts, corporate governance, land use, and real property. Chilina Law can be contacted by telephone at (805) 538-5038 or by email at firstname.lastname@example.org or visit the Chilina Law Firm at www.chilinalaw.com. Chilina Law Firm is based in Atascadero, California and serves North San Luis Obispo County communities, including Santa Margarita, Atascadero, Templeton, Paso Robles, and San Miguel.
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