When a person dies (known as a “decedent”), their estate (that is, all of their assets and property) comprises both “probate assets” and “non-probate assets.” “Probate assets” are assets that must be distributed to your intended heirs through the court process known as probate. Probate can be a lengthy and expensive process. In essence, the court ensures that a decedent’s assets are properly distributed to his or her intended beneficiaries.
“Probate assets” include bank accounts, real property, and personal property, such as jewelry, furniture, or vehicles. Conversely, “non-probate assets” mean just what they say: assets that do not need to go through the probate process. Such assets include real property held as “joint tenants,” pay-on-death bank accounts, life insurance, and retirement accounts. Importantly, and as it relates here, “non-probate assets” also include assets (even those that are initially “probate assets”) that are held in a trust.
A trust is when one person (known as the “trustee”) holds title to property for the benefit of another person (known as the “beneficiary”). The “settlor” (also known as the “trustor”) creates the trust and must place his or her property into the trust. This process is known as “funding the trust” and it is a critical and often overlooked procedure when establishing a trust.
By far the most common (and problematic) example is failing to transfer title in the trustor’s real property (i.e. his or her home) into the trust. As noted above, real property, such as your house, is generally a “probate asset” and therefore must be distributed through probate. One of the significant advantages of having a trust is the ability to transfer your real property into your trust, which thereby avoids probate. To do so, the trustor must change the title on the property to be held in the name of the trustee, as trustee for the trust. However, if the trustor fails to properly “fund his or her trust” by not transferring title, the real property will remain a “probate asset” and will need to go through the probate process.
Here is where the “Heggstad petition” comes into play. With a Heggstad petition – named after a 1993 California Court of Appeals case – real property may be made part of a trust’s assets without a separate deed transferring property into the trust. In essence, a Heggstad petition acts as a post-mortem transfer of real property into the trust.
However, Courts do not automatically grant Heggstad petitions. This area of law is nuanced and has over 20 years of case law exploring a variety of different circumstances. The Court will look at various indicators, including the trustor’s intent when establishing the trust.