Funding Your Trust

Central to the formation of a trust is the actual transfer of property from the hands of the owner to the hands of the trustee. This transfer is known as trust funding. No transfer, no trust. In fact, the consequences of not having assets properly funded into the trust can be dramatic.

Because real property already titled to a trust is often taken out of trust for the purposes of financing or refinancing, oftentimes the property is not properly retitled to the trustee of the trust when the finance transaction is complete. The good news is that if that were to happen and not discovered until after the trustor(s) has died, there is a remedy for this.

In the 1993 Estate of Heggstad case, an owner of real property created a trust and described the property to be held in the trust, with himself as trustee. However, the trustor never formally prepared and recorded a deed transferring title from his individual name to his name as trustee of his newly created trust.

The court determined that the trustor’s written declaration of trust, which included an attached schedule listing the specific property, showed the necessary intent to transfer the real property to the trust. Following the outcome of the case, a beneficiary of a trust that is created, but not properly funded, can bring what is known as a “Heggstad Petition,” pursuant to Probate Code § 850, asking the court to order that the property left outside the trust but was intended to be registered to the trust is, in fact, an asset of the trust.

But what if a trust fails to include title transfer and a specific description of the property? Well, estate plans often include a general assignment to trust, outlining an intent to transfer “all property, both real and personal” to the trust as a stopgap measure. No reference is made to specific items, accounts, or parcels of property. In these cases, until recently, a Heggstad Petition would not work because the intent to transfer specific property cannot be proven with just a general assignment.

In 2015, the case of Ukkestad v. RBS Asset Finance, Inc. expounded upon the holding in Estate of Heggstad by ruling that a trust declaration’s general language assigning real property to a trust was sufficient to transfer the property at issue in that case into the trust. But there is a catch: it must be possible to confirm through extrinsic evidence, such as public records, the trustor’s ownership of the real property.

It is important to review title and registration documents regularly to ensure that all property intended to be in the trust is actually titled properly. However, in the event that doesn’t happen, there are legal tools available to remedy the problem.

If you are looking for an experienced Sonoma County trust attorney, estate planning lawyer or probate attorney call  707-623-1316. Our office is located in Santa Rosa and we proudly serve Santa Rosa, Petaluma, Healdsburg, and all surrounding areas. Don’t hesitate to call for your free initial consultation.