As an estate planning attorney I am often confronted with situations where the person who has created a trust has not done all of their homework. In short, I’m talking about situations where the trustor has not undertaken the action necessary to transfer registered title of one or more assets into the name of the trust.
As an example, pretend Bill Doe creates a living trust, and notwithstanding instructions given him to do so, he does not change the title ownership of his brokerage account which holds $400,000 of publicly traded securities. To fulfill this task, he simple needed to contact the brokerage firm and change title on the account from himself to “Bill Doe, Trustee of the Bill Doe Living Trust”. But he did not do that. At the time of his death, the account was held in his individual name, not in the name of the trust.
Assets held in the trust name are not the subject of the death probate, but assets not held in the name of the trust may have to be probated in order to transfer legal title to the decedent’s heirs.
But there are ways to avoid the death probate process, even in these circumstances.
The following assets are not required to be probated upon the death of the owner:
- Assets held in joint (tenancy) with right of survivorship;
- Assets held in community property;
- Assets the subject of a contractual disposition, like life insurance and IRA accounts;
- Accounts the subject of a pay on death designation, like savings and brokerage accounts; and
- There are numerous exceptions for avoiding probate contained in the California Probate Code, starting at Section 13000, the most commonly used of which is an affidavit procedure pursuant to Probate Code §13100. This section permits the transfer of title of assets without probate based upon the presentation of an affidavit, provided ALL assets which would otherwise be the subject of a probate do not exceed $100,000 in COMBINED value.
But in the example of Bill Doe above, unless he has changed the account owner to be the trust or designated a pay on death beneficiary for his brokerage account, it will have to be probated resulting in substantial delay and $11,000 of statutory attorney fees.
But there may still be another way to avoid probate in this example. And that is to bring a petition before the Probate Court under Probate Code §850(a)(3)(B) for a determination that the trustee of the trust “. . . has a claim to real or personal property, title to or possession of which is held by another” and request “. . . an order authorizing and directing the personal representative or other fiduciary, or the person having title to or possession of the property, to execute a conveyance or transfer to the person entitled thereto, or granting other appropriate relief.”[1] To do so, the court must be “. . . satisfied that a conveyance, transfer, or other order should be made”[2], in other words, that the trust has a valid claim.
Probate Code Section 850 has its beginnings in the case of Estate of Heggstad (1993) 16 Cal.App.4th 943. In that case a decedent had executed a living trust and attached to it a list of assets intended to be held in the name of the trust. The decedent thereafter changed legal title to all of those assets into the name of the trust with the exception of one parcel of real property, title of which was never changed. Whether or not said real property was subject to disposition pursuant to the trust terms was an issue of more than whether or not the asset would have to be probated. If it is was the subject of the trust, it would pass to the trust beneficiaries, otherwise, as a probate asset it would have been the subject of the California intestacy laws and would pass in part to the decedent’s surviving spouse. Without getting into a great deal of detail, the Heggstad court determined that the listing of the real property as a trust asset which schedule of assets was incorporated into the trust was a sufficient showing of the decedent’s intent, and confirmed its ownership by the trust. Shortly thereafter, the Probate Code was amended to provide a statutory method of bringing petitions before the probate court in similar cases, and eventually that amendment ended up in Probate Code §850.
Normally the Probate Courts are very liberal in granting these petitions, especially when there is no opposition. However, in one recent case, the Probate Judge denied the petition, and in turn, that decision was appealed.
The facts in this recent care are that an elderly trustor created a living trust, and in conjunction with that made a list of assets intended to be held in the trust. Omitted from that list was reference to securities held in her individual name with a value exceeding $100,000 (and thus not subject to avoiding probate pursuant to Probate Code §13100). The stock certificate evidencing her ownership to these stocks had been lost, thus impeding her changing title of those to the trust. She died shortly after creating the trust and before title to the stocks could be changed.
However, at the time she executed her trust, she also executed a general property assignment which stated “I . . . hereby assign, transfer and convey to [the] Trustee of the [the Trust], all of my right, title and interest in all property owned by me, both real and personal and wherever located.” She also executed a pour over will providing that her entire estate should be distributed to the trustee of her trust.
The Judge of the Probate Court denied the petition to confirm ownership of the stocks by the trust based upon the statute of frauds[3] requiring transfers of assets to be evidenced by a document in writing. The Court of Appeal reversed the Probate Court ruling, holding that the Civil Code subsection relied upon was only applicable to documents pertaining to loans, and finding that the general assignment form, combined with the intent of the trustor as set forth in her pour over will was sufficient grounds for a finding that the stocks were intended to be held in the trust, and ruled accordingly.
There are several lessons to be learned from this case. First, it is important to change legal title of your assets to the name of the trust. Second, if that hasn’t occurred, there may still be other ways to avoid the probate process, albeit more expensive than if you had followed the first rule. Third, having a complete estate plan, including things like a general assignment form and pour over will are extremely important, because you never know when those might be needed.
