Often, individuals pass away without fully funding
their revocable trust. In these cases, a probate is ordinarily required in
California when probate assets exceed $150,000. Probate assets exclude accounts
that are held in joint tenancy or that transfer by beneficiary designation, but
include real property, cash accounts, or investment accounts which are held
outright. If probate assets are less than $150,000, then a simple affidavit
citing certain provisions of the California Probate Code may be prepared in
order to compel a financial institution or other third party to transfer assets
to the trust. A provision in the affidavit indemnifying the financial institution
against any potential liability can be very effective in compelling the
financial institution to transfer the asset to the named trustee.
When
probate assets exceed $150,000 in value, a certain court procedure called a Heggstad Petition may still be possible in order to
transfer assets to the trust. Under this procedure, it must be established that
the decedent intended to fund his trust. Some courts require the existence of a
specific assignment and particular language in the Schedule A as proof of
intent. Other courts are satisfied with a generic Schedule A signed by the
decedent, which lists all real, personal, tangible, and intangible property as being
owned by the trust. If it may be possible to proceed with such a petition,
individuals should consult with a trust administration attorney to ensure that
the petition is prepared correctly. Not every county has the same rules and
procedures, but a properly prepared petition will usually save the estate a
significant amount of time and expense. The alternative, a full blown probate
proceeding, is not an attractive proposition.
In
the case where the decedent did not leave adequate proof of his or her intent
to fund the trust, it will be necessary to initiate a probate. In trust based
estate plans, individuals usually execute a “Pour Over Will,” which names the
revocable trust as the sole heir of the estate. The purpose of the “Pour Over
Will” is to ensure that assets that were not funded into the trust during
lifetime will be transferred upon the conclusion of a probate. In the absence
of a Pour Over Will, or if the Will names other beneficiaries besides the
trust, the existence of the trust may be pointless. In these cases, the
beneficiaries of the unfunded assets may the decedent’s intestate heirs—for
instance, one’s spouse, children, grandchildren, parents, siblings, and so on. Or,
in the case of a Will which names individuals instead of the trust, those
individuals would receive the estate rather than any beneficiaries named in the
trust.
Conclusion:
Don’t Risk Having an Unfunded Trust
Wrapping up this trust funding series, remember that the failure to properly fund a trust can seriously
undermine its original purposes. While certain court procedures may be
available to solve the funding problem —namely, a Heggstad Petition—the burden of proof for success is not always met.
As a result, a failure to fund can result in costly probate proceedings or
worse, a transfer of the estate to unintended beneficiaries. In order to
prevent these problems, individuals should work with a qualified estate
planning attorney in order to prepare effective documents and establish
adequate proof of intent to fund. In general, do-it-yourself kits, mass
seminars (even if presented by attorneys), and internet trusts fail to provide
the resources necessary in order to satisfy the rigorous requirements of
courts. In addition, individuals should not rely only on the documents
themselves to fund the trust. Instead, each asset should actually be
transferred to the trust. Very detailed oriented people may be able to do much
of the trust funding themselves, particularly when a back office of a bank or financial
institution is available to help. For other assets, or if you do not have the
time and energy to ensure complete trust funding, make sure to consult with
your attorney to determine how much funding services will be provided.
If you have questions, contact our Menlo Park wills and trusts lawyers.
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