Unbeknownst to many, a necessary step in creating your Living Trust agreement is funding the Trust. You can create a Living Trust, notarize the document and place the Trust in your safe. However, without funding the Trust, it may not protect any of your assets upon your demise. Once a Living Trust is established, the assets the Trustor intends to be transferred to the Trust must be held in the name of the Trust. If it is not properly funded with your assets, your estate is still vulnerable to Probate, an approximately 1 ½ year process which incurs statutory fees before assets are passed on to heirs. This includes, but is not limited to, the title of your home, bank accounts, stocks, bonds, etc.
It is easy to forget to open a bank account or purchase a property in the name of your Trust. However, in the case of the Estate of Heggstad 16 Cal. App. 4th 943, a Successor Trustee petitioned the court to argue that a property was intended to be a Trust asset. In a landmark court decision, it was held that, although the estate in question included a property that was not properly deeded to the Trust, the property was listed on an attached Schedule A which reflected the Trustor’s intent to place it in the Trust. Based on this proof of the Trustor’s intentions, the Court allowed the property to be transferred to the Living Trust even after the death of the Trustor. We include Heggstad language directly in our Trusts and prepare Schedules to ensure that these sometimes forgotten assets are protected from Probate.
Scenario: Mr. and Mrs. Caski establish the Caski Family Living Trust in 2002, transferring title on the deed to their home to the Trust. In 2008, Mr. and Mrs. Caski decide to refinance their home. In order to refinance, the mortgage company requires that they remove the property from their Living Trust. A new deed is prepared which transfers the home from the Trust into their names personally. Mr. and Mrs. Caski complete the refinancing and believe they have finished the process. They forgot, however, to prepare a new deed and place the home back into the Trust. They live happily for the next thirty years until they pass away peacefully at home.
Their daughter, Hana, was prepared to receive her inheritance through the Caski Family Living Trust. She was gravely upset, however, to realize that her parents forgot to place the title of their home back into the name of the Caski Family Living Trust after they refinanced. However, she noticed that her parents had attached a Schedule A which listed the property in question. Additionally, their Trust included Heggstad language, which referred to the attached schedules and clearly provided that the assets listed on these attachments were to be considered property of the Trust. After having her attorney file a petition with the court and obtain a court order in a relatively short time, Hana was able to successfully avoid the long, taxing process of Probate and enjoy her inheritance the way her parents intended.
All Living Trusts should include Heggstad language and an updated schedule of assets.