By Michael Repka, Esq.
It is well publicized that the DeLeon Team provides clients with access to real estate and tax attorneys as part of our standard listing agreement. To our knowledge, we are still the only major brokerage in Silicon Valley that provides access to this valuable service to all of our sellers at no additional charge.
Virtually all of our sellers benefit from having their disclosures reviewed by an attorney, and while many appreciate our contract review and deal structuring, a few clients need even more than that.
Sure, we handle the legal wrangling associated with buyers that breach their contract to purchase one of our seller’s homes. In fact, we recently resolved a dispute between our seller and a breaching buyer. Our sellers walked away with a check well into the six-figure range (and paid no legal fees) whereas the buyers, represented by an agent at another large brokerage, wrote two big checks—one to our sellers and, presumably, another big one to their lawyer. However, sometimes our clients need even more support, and we’re here to provide that. Recently, one of our sellers found herself in a very challenging situation. Her mother had established a trust, but passed away before formally transferring ownership of her home into the trust.
Unfortunately, assets owned by a decedent in their own name, rather than in their trust, are generally subject to probate in California, which can be very expensive and time-consuming. It is an unfortunate fact of life, err, death, that the probate process often results in tens of thousands of dollars of extra expense and can last a year, or longer.
Fortunately, California Probate Code section 850 provides a solution in some circumstances: a Heggstad Petition
What is a Heggstad Petition?
A Heggstad Petition is a formal process in which an attorney petitions the court to get a court order stating that an asset that was not formally transferred into the trust is nevertheless a trust asset. While there are other uses of a Heggstad Petition, this article will focus on situations in which a settlor failed to properly transfer an asset into a trust prior to their passing.
Advantages of a Trust
In California, most financially sophisticated people understand the need for a revocable trust. Historically, these taxpayers knew that they needed to establish a revocable trust for three main reasons:
1) To reduce the estate tax burden;
2) For intra-family planning; and
3) To avoid probate cost and delay
Although the meteoric rise of the estate tax exemption (currently $11,400,000 per person) coupled with the 2010 introduction of “portability” has dramatically reduced the need for estate tax planning, intra-family issues, and the avoidance of probate costs continue to make revocable trusts useful, if not vital.
Reasons Why Property May Not be in a Trust
Unfortunately, many people engage an attorney to establish their trust, but never actually execute a deed to transfer the property into the trust. This can occur because they thought the attorney was going to do it for them, or because they simply forgot. Alternatively, sometimes there is a flaw in the instrument of transfer or some other reason why the transfer was unsuccessful. Another possibility is that the settlor (i.e., the person that originally established the trust) removed the assets from the trust for some reason, such as refinancing, and did not put it back into the trust before their death. Heggstad Petition Procedure An attorney begins the process by filing a verified petition, which lays out all of the relevant facts in detail and includes the names and addresses of any person entitled to the notice of the petition (i.e., beneficiaries).
Additional information generally supplied includes:
1) The Trust document(s);
2) A declaration of Trust, if any;
3) The death certificate;
4) Information about the successor or acting trustee;
5) A description of the property; and 6) A detailed description of the relief or action sought
The petition requires a 30-day notice to all interested parties. In light of this notice requirement, it normally takes around 60 days to complete a Heggstad Petition.
Once the court has reviewed and approved the petition, it enters a judgment stating that the assets in question are now in the trust. Once complete, the trustee can then sell the assets in the same way that they can sell any other trust assets.
As a result of our legal expertise, the DeLeon Team was able to successfully get the family house transferred to the family trust. This allowed our client to avoid all of the time, expense, and aggravation associated with a probate sale.