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”).

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.