The Empty Will: Why a California Will or Trust May Not Control Your Assets after Death.

Posted by Keith A. Davidson on April 06, 2012

You may think that a California Will or Trust controls the distribution of all your assets after your death.  You may be surprised to learn just how meaningless a Will or Trust can be depending on how your assets are titled.

When a person is alive, his assets are viewed as belonging to him.  When that same person dies, however, his assets suddenly become separated into distinct legal entities that may have nothing to do with one another.  And each legal entity has its own set of rules and procedures governing its distribution.

For example, let’s say you have one living parent (we’ll call her Mom), she has three children and she owns the following assets:

  • House—A home titled in the name of her revocable Trust, which lists all three children as equal beneficiaries,
  • Bank Accounts—A checking and savings account at Citibank titled jointly in her name and her oldest son’s name (we’ll call him Adam),
  • Brokerage Account—A brokerage account titled jointly with her youngest son’s name (we’ll call him Bob),
  • Retirement Accounts—An IRA and 401(k) with all three of her children designated as equal beneficiaries, and
  • Life Insurance—that names her only daughter as the sole beneficiary (we’ll call her Cindy).

While Mom is alive she can do whatever she likes with her assets.  She can open and close accounts, she can move money into or out of her revocable Trust, she can even name different beneficiaries for her life insurance policies.  It’s all just one big pot.

But when Mom dies, things change.  All of the various assets become essentially locked into whatever state they were in prior to Mom’s death.  And each entity has its own, independent distribution scheme.

That means, for example, that the assets will pass in different ways:

  • House—passes to the three kids equally under the terms of Mom’s revocable Trust,
  • Bank Accounts—pass to Adam ONLY, because he is the surviving joint tenant (neither the revocable trust nor any Will control this asset after Mom’s death),
  • Brokerage Accounts—passes to Bob ONLY as the surviving joint tenant,
  • Retirement Accounts—pass under the beneficiary designations to the three children equally, and
  • Life Insurance—passes to Cindy ONLY as the sole named beneficiary. 

Even if Mom had a Will, the Will would not control any of these assets because none of the assets are passing under Mom’s estate.  They all bypass the estate because the assets are held in so many different probate-avoidance vehicles.  In fact, even the revocable trust controls very little of this estate—the House only.  Since the other assets were not titled in the name of the Trust, none of them pass in accordance with the Trust terms.

Mom may have thought that ALL of her assets would be divided equally among her children because that’s what her revocable Trust stated.  But Mom couldn’t be more wrong.  When setting up accounts in a certain form—such as joint tenancy or assets with designated beneficiaries (like life insurance and 401(k) accounts)—those forms control the assets after death.  In other words, the title to an asset has significant legal meaning after death.  Yet so many people create things like joint tenancy accounts without fully appreciating the consequences of their actions.

Further, if you are going to contest how an asset passes, then you better know which legal entity you need to go after.  If you sue the Trust based on an asset that does not belong to the Trust, then you’re going to waste a lot of time and money going down a deadend road.  

Marital Rights Without Marriage -- How Nonmarital Partners May Receive a Share of a Deceased Partner's Estate Based Upon an Oral Promise Before Death

Posted by Stewart R. Albertson on April 19, 2011

One of my first litigation cases was against attorney Thomas W. Dominick in San Bernardino County Probate Court. Tom is one of the best estate and trust litigators in California. To say the least, I was scared. The issue in that case revolved around whether my client had a right to his girlfriend’s real property after her death. She promised my client the property during her lifetime and he had spent money on the property, but nothing was in writing and the two were never legally married. I remember being frustrated that I could not find a legal doctrine to support my client’s claim after his girlfriend died. I was shocked that there appeared to be no real protection for long-term nonmarital partners after the death of the other partner. I ended up alleging several causes of action that were weak at best (i.e. oral promise to enforce trust in real property, quiet title, specific performance, constructive trust, and unjust enrichment—known generally as Marvin claims based on a case of the same name). Unfortunately, these claims must be brought within one year of the decedent’s date of death or they are forever time barred under the statute of limitations applied to decedents' estates. And, the girlfriend’s family waited over eight years to file a petition for probate, knowing all the while that my client continued to live in what he believed was his house (the eight year time-frame made most of my client’s claims moot).

But I had equity on my side as my client had lived with his girlfriend for almost 30 years and he had invested his own money into the home over the years. Thankfully, the case settled after Thomas and I worked out a settlement, on behalf of our respective clients, which allowed my client to occupy the home for his lifetime.

A recent Court decision would have made my job much easier in the above-referenced case.  In McMackin v. Ehrheart (decided April 8, 2011) Presiding Justice Robert M. Mallano, writing for California’s Second Appellate District, Division One, discussed (as a matter of first impression) whether a Marvin claim based on a decedent’s promise to leave her nonmarital partner a life estate in real property requires the nonmarital partner to file a lawsuit within one year of her partners death, and if so, whether the doctrine of equitable estoppel can be applied to preclude assertion of the one year statute of limitations. The court concluded that the Marvin claim is governed by a one year statute of limitations, but that, depending on the circumstances of each case, the doctrine of equitable estoppel may be applied to preclude a party from asserting the one year statute of limitations. 

The pertinent facts of McMackin established that nonmarital partners—Hugh and Patricia—lived together in Patricia’s home from 1987 to 2004. Hugh was never on title to Patricia’s home, but continued to occupy her home after her death. More than three years after Patricia’s death, her children filed a petition for probate, which would effectively kick Hugh out of the home leaving him with no interest in Patricia’s estate. In reply, Hugh filed a lawsuit alleging that Patricia had promised him a life estate in the home upon her death in consideration for 17 years of his “love, affection, care and companionship.” Hugh argued that the one year statute of limitations did not apply. Of course Patricia’s daughters argued that the limitation statute applied (as three years had passed). In response, Hugh argued that even if the one year statute of limitations applies, the doctrine of equitable estoppel precluded Patricia’s daughters from using it against him. The court of appeal agreed, stating the one year statute of limitation applies, but that equitable estoppel may preclude the daughters from raising it as a defense. The court of appeal then sent the case back to the trial court for determination of these issues.

Overall, McMackin is a great case to review if you run into nonmarital partner estate issues. Justice Mallano did a great job in articulating the legal analysis pertaining to Code of Civil Procedure section 366.3 and the doctrine of equitable estoppel. I think this case will be used as more people choose to live together rather than get married. Of course all of the Marvin claim messes can be avoided by proper estate planning (i.e. creating California trusts and wills).

The Expansion of Estate of Heggstad (at least for non-real property assets)

Posted by Stewart R. Albertson on February 03, 2011

Here’s a situation we see often: Sally dutifully creates a California Trust, and at the same time signs a “general property assignment” to the Trust, which states in effect, “I, Sally, hereby assign, transfer and convey to myself as trustee of my trust, all my right, title and interest in all property owned by me, both real and personal and wherever located.” (Notice Sally did not particularly identify any of the assets she assigned to her trust).

Several years later Sally dies. Tom is the successor trustee of Sally’s trust. Tom finds out that Sally failed to formally transfer title to several stocks worth $200,000 to her trust before her death.

The question arises—is the “general property assignment” sufficient to confirm the stocks are owned by Sally’s Trust? Or do the stocks need to be probated? Until recently the answer was usually “no”, the general assignment is not enough to confirm the stocks are owned by Sally’s trust, requiring Tom to file an expensive and time-consuming “Petition for Probate” to have Sally’s stocks “poured over” into her Trust.

But now, as of January 26, 2011, it is likely that Sally’s “general property assignment” is sufficient to confirm the stocks are indeed owned by Sally’s Trust—alleviating the need of filing an expensive and time-consuming “Petition for Probate”.

Justice Kenneth R. Yegan, writing for the California Court of Appeal, confirmed—that in a case like Sallys—a “general property assignment” is effective to transfer ones stock to his or her trust, even though the “general property assignment” does not particularly identify the stock. (Presumably, the general assignment would work for all non-real property assets, i.e., bank accounts, brokerage accounts, retirement accounts, life insurance, etc.)  

This is good news for the family members of those who forget, or by some other kind of oversight, fail to properly fund non-real property assets into their trust before they die. Now, under California law, all non-real property assets in excess of $100,000 in value may likely be confirmed to be trust assets by way of a general property assignment (e.g., “I …, hereby assign all of my property to my trust”). 

Unfortunately, as Justice Yegan points out, real property (houses, etc.) cannot be confirmed as trust assets by way of a “general assignment”, because real property must be either formally transferred to a trust by way of a deed, or particularly identified in an attached schedule to a trust. In cases where real property is not sufficiently identified as a trust asset, a petition for probate will most likely be required.  

Usually the best course of action is to have the “deed” to ones real property titled in the name of the trust. Or, at a minimum, have a schedule attached to the trust that particularly identifies the real property (i.e., “That certain real property commonly known as 3750 Santa Fe Ave., Riverside, CA 92507”).

850: The Magic Number in Probate Court Litigation

Posted by Keith A. Davidson on November 23, 2010

Probate Code Section 850 allows a procedure for litigants to seek the transfer of property into or out of a trust or estate.  It is an often-used vehicle in Trust and Estate litigation, but not often understood.

In its simplest form, a typical “850 Petition” is used to transfer real property into a revocable trust after the death of the trust creator (called the “Settlor”) where title to such property was not properly titled in the name of the trust before death.  All too often, people create trusts without understanding that a trust only controls assets that are transferred into it.  Thus, after death, the trust may be created, but it may not control all of the decedent’s assets.  To cure this defect, the successor trustee of the trust can file an 850 Petition requesting that the decedent’s property be transferred to the trust and be held as a trust asset.

The basis for transferring property into a trust after death is set forth in an often-cited case called Estate of Heggstad.  In Heggstad, an individual created a trust, but failed to transfer title to his real property into the trust prior to his death.  However, in the trust instrument he stated (i.e., he declared) that he held the same real property as trustee.  The Heggstad Court held that where an owner of property declares himself to be trustee of that property, the property is a trust asset and can be formally transferred to the trust after death.

Therefore, nearly every 850 Petition that asks for property to be transferred into a trust uses Estate of Heggstad as its legal basis.  But Estate of Heggstad has its limitation.  Oftentimes it is cited for positions that were never discussed or even contemplated by that case.  For example, a proper “Heggstad Petition” requires that the owner of property declares himself or herself to be holding that same property as trustee.  Typically, this requires some reference to the subject property either in the trust document (such as on a schedule to the trust) or in a separate written assignment.  If there is no such declaration, there is no Heggstad application.  Yet time and again petitioners allege that certain property should transfer to the trust because the decedent intended to put it into the trust but never got around to doing it.  This is not enough.  Either the decedent declared himself as trustee or he didn’t.

Courts in this area are beginning to see this Heggstad issue more strictly—actually requiring some showing that the Heggstad requirements are met.  In the past, it was not uncommon to have a particular piece of property transferred into a trust (and thereby avoid the probate process) even though the Heggstad elements were not fully met.  A sort of “wink and a nod” approach that many Courts accepted in order to streamline the process.  Not so now.  At least some of the elements of Heggstad must be demonstrated in most Courts if you are looking to “Heggstad” a piece of property.  This is especially true where the petition is contested—multiple beneficiaries arguing over whether property should transfer into trust or not.

But wait there’s more.  This is going to take a few posts to fully digest.  For purposes of this post remember that a declaration of owning property as trustee may be sufficient to make a personal asset a trust asset.  This is assuming someone messed up and failed to transfer the asset into trust before death.