Creating and funding a trust is a multistep process. It takes time to complete that process, and a vital part involves transferring assets and property into a trust. When transferring a home into a trust, for example, the home’s title must be amended via a deed to reflect that it is currently owned by the grantor’s trust, rather than the grantor as an individual.
But what happens if the grantor of the trust dies halfway through the process? What if evidence exists reflecting their intent to fund property into a trust, despite the title saying otherwise? In California, an estate case in 1993 led to the creation of the “Heggstad petition” (named after the decedent in that case), a process that later became part of the California Probate Code (Section 850).
The Heggstad petition allows a trustee to argue in probate court that the recently deceased meant to fund real property into a trust, yet failed to do so, but that their intent remains enough to allow the property to transfer into the trust anyway posthumously. This would mean that said property – if it satisfies the Heggstad petition requirements – need not pass through probate.
Why File a Heggstad Petition?
The scope of the original Heggstad petition was quite limited, specifically referring to property described in a trust (through a schedule of assets, in the original case) but not yet funded into it. This meant that if the documentation surrounding the trust described real estate that the settlor or grantor hadn’t yet attributed to the trust through a deed.
Thus, the trustee could argue that the evidence of intent to do so is sufficient for the property to be added to the trust after death, thereby avoiding disposition through the decedent’s will. The Heggstad petition is meant to finish what the decedent started, if they, for example:
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- They fell gravely ill during the trust creation and could not finish the last crucial steps before death.
- Flawed paperwork invalidated the funding of the trust and thereby meant that the property remained in their name.
- They did not know that creating a trust means transferring property enumerated in the trust document to the trust’s name.
- They knew but forgot or did not get the chance to due to an untimely and sudden death.
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To understand how a Heggstad petition can help an estate and why it may be important to avoid probate, it is important to understand trusts and the probate process. When a person dies, their assets and belongings are defined as their collective estate. This estate must be lawfully distributed, either according to various documents and designations (estate planning) or state intestacy laws in the absence of any relevant documents.
A person’s last will is a common estate planning tool, declaring how they want their property to be distributed. A local probate court oversees this public process, including naming an estate representative to evaluate it, paying outstanding debts and fees, settling the decedent’s final affairs, and distributing assets per a legitimized will (or state law, in the absence of a will). The larger and more complex the estate, the longer and more expensive the probate process.
Certain assets bypass probate. Anything that automatically transfers to a designated beneficiary, such as a payable-on-death account or a life insurance policy, need not be included in a will. Assets held in trust also bypass probate, as they are owned by the trust and managed by the successor trustee, rather than passing into the decedent’s probate estate. There are many other benefits to holding assets and real property in trusts, from tax planning purposes to better managing certain funds and assets for a beneficiary’s benefit.
As such, a Heggstad petition can be crucial in ensuring that a decedent’s estate plan is properly carried out. A 2015 case, Ukkestad v. RBS Asset Finance, Inc., further set a precedent for what defined the requirements for a Heggstad petition moving forward.
Requirements for a Heggstad Petition
There are two major requirements for a Heggstad petition:
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- Proof of intent. This may include naming the property in a schedule of assets, making a note of it elsewhere in the document, or referring to it indirectly by referring to a list of properties that include it.
- Compliance with the statute of frauds. This requires that the trust itself is valid. Section 15206 of the California Probate Code makes a note of the statute of frauds by explaining that trust must be evidenced by:
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- A written instrument signed by the trustee or an authorized agent of the trustee.
- A written instrument conveying the property signed by the settlor or an authorized agent of the settlor.
- By operation of law.
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If the trust itself declares a certain property part of it and is signed and legitimized by the decedent, then it effectively allows a successor trustee to argue that the property can then be funded through the petition.
The Importance of a Well-Made Estate Plan
Filing for a Heggstad petition should not be the norm. While it can be an option to save an estate plan from a simple mistake or some unfortunate timing, leaving it up to a court decision that ultimately rests on how well you can prove intent to fund property into a trust can leave you open to serious litigation from anyone willing to challenge the petition.
Estate plans ideally shouldn’t leave much open to interpretation. Even simple things like failing to file a deed to reflect a property’s inclusion in a trust can severely impact your plan, especially if your estate plan is contentious among other family members or if you anticipate a clash after years of cooled family relations.
By working with a reputable estate planning attorney, you can avoid most of these issues and ensure that your estate plan is as air-tight as the law allows while leaving room to amend and adapt it every few years or as needed. An estate planning professional can also walk you through the language they use to enable a Heggstad petition in cases where you mean to fund new or existing real property into your trust in the last minute but fail to do so before an untimely death.
Alternatively, they may help you word a will that enables any remaining property in your estate to automatically fund into a trust in a testamentary way, through a so-called pour-over will. Estate plans must be tailored to an individual’s needs and circumstances. Be sure to discuss your concerns and wishes with a professional and craft a plan that best suits you.