Inside Out: What happens when property is left outside of a Trust?

In this video, partner Keith A. Davidson discusses two ways in which property can be transferred into a Trust after the settlor dies.

The following is a transcript of this video:

In this video, I’m discussing what happens when property isn’t transferred into a trust before the trust settlor dies.
So, for example, let’s say your parent created a trust. They had a house. But they never changed the deed on the house into the name of the trust. That’s what you’re supposed to do. Record a new deed. Sometimes, people don’t do that.

Well, there’s two options for you when that occurs. The first option is what’s called the Heggstad Petition and a lot of people have heard the word Heggstad Petition and it comes under Probate Code Section 850 and what you’re doing is you’re going into the court and you’re asking the court to order that the property is part of the trust because the property was contained in the Declaration of Trust. So when an owner of property declares themselves to be trustee of that property, a trust is created over the property at the time of the Declaration, even though the deed wasn’t changed. That’s California law under case law.
So what you do is you look at the trust and you see if there’s a Schedule “A” where maybe the address is listed as part of the trust document. Or, sometimes there’ll be a separate assignment. So if the trust was done and then the lawyers did a separate assignment of all assets including the house, you can also use that.

So you go to court and you try to convince the court to order the house into the trust. The benefit of that is you don’t have to do probate. And so that’s a shortened way to get property into the trust. The downside is it’s not guaranteed it’s going to work. And so there’s a risk that the court might say no, we don’t think that this meets the Heggstad standard and so we’re not going to transfer.
Your second option is to simply probate the house. When people do trusts, they also usually do a pour-over will and the pour-over will says whatever assets I have, my individual name, give them to the trust. The problem with the pour-over will is you have to go through the whole, full-blown probate process. But that’s the default. So you certainly will be able to get the property into the trust using the probate process and the pour-over will. The only downside is probate takes time. I mean, even an easy probate can easily take 10 to 12 months and then you have to pay the probate fees to the personal representative and their attorney, which is a percentage of the estate and so it costs some money. But it’s guaranteed to work.

So the first option, the Heggstad Petition, it’s not guaranteed to work but it’s a lot faster and simpler. Or you can do the probate option – guaranteed to work but it’s slower and it costs more money. So you have to weigh the options. And this is where, if you consult with a lawyer, they can give you an idea of whether or not they think you’re 850 petition under Heggstad would be successful or not. And if they think it would be, it’s probably worth a shot to try and get that done.