We have written about how important it is to fund a living trust correctly in order to avoid probate court proceedings after the trustor’s death. Listing the assets that are in the trust in an attachment to the trust is important as a guide for the successor trustee for finding all of the trust assets, but it also serves an additional purpose, to indicate the trustor’s intent that property is in the trust.
In the case of Estate of Heggstad, a California court held that property of the decedent was property of his trust because he had listed the property interest on a schedule attached to the trust, a schedule A. Although the decedent had transferred other real property he owned to his trust by deed, he had not done so for a property in which he owned a 34.78 percent interest. But he had listed that interest in the schedule A, indicating that he intended that the property be in the trust.
The court held that it was sufficient that the trust stated that the property set forth in schedule A was set aside and transferred to the trust and ruled that the real property interest was owned by the trust.
Best practice is to transfer real property to the trust from the trustor, and to make sure that financial assets are in accounts which list the trust as the account holder. However, sometimes assets are not actually transferred or retitled.
Similarly, financial accounts (other than IRAs and the like) should be titled in the name of the trust and also listed on the schedule A. If they are not titled in the trust, then it is important that the accounts be listed on schedule A.
Having the assets listed on the schedule A referred to in the trust gives the successor trustee the opportunity to file a “Heggstad” petition and to convince the court that the trustor intended the property to be in the trust. This is a simple petition which only requires one hearing. This includes real property, and the process can be completed in as little as 2 months. For a Heggstad, the Petition is filed with the Court and a hearing date is given. At that hearing, assuming all of the requirements are met, the Court will order that the assets that are on schedule A are part of the Trust. This process is cheaper and much quicker than a probate proceeding. While it is best practice to make sure that assets that should be in Trust are properly titled, it is also advisable to keep an accurate list of Trust assets just in case an asset is not titled correctly.
It is our practice to have the trustors sign a document transferring all personal property of the trustor into the trust, in addition to listing it on the schedule A.
If the property is not correctly titled and not listed in the trust document or the attachment, then a full probate petition may be necessary using the “pour over” will which is a standard part of the trust estate planning process to get the property to the trust. When relying on a Pour-Over Will to bring assets into a Trust, an entire probate proceeding needs to be completed. This means that it will take 6 months at a minimum, but likely closer to a year, to bring all the assets into a Trust. Additionally, Attorney’s and Administrator’s statutory fees will need to be paid, which will be much higher than a Heggstad Petition. After the probate, then the administration of the Trust can finally begin.