In a June 1993 case, Estate of Heggstad, the California Court of Appeal ruled that a deceased person's real estate was part of a revocable "living trust" even though no title was ever prepared or recorded to reflect the transfer. Mr. Heggstad had properly set up a trust, but mistakenly believed that he owned only a "partnership interest" in some Atherton real estate. In fact, Mr. Heggstad was a "tenant in common," and should have prepared and recorded a deed reflecting the transfer to trust.
After Mr. Heggstad's death, a dispute arose as to whether the property was held by the living trust (and would thus pass to his children), or passed through probate (in which case his new wife would receive one-third).
The court decided that the written trust document was adequate to document a transfer to trust, and concluded that the property was part of the trust. (The result would be different if Mr. Heggstad was a "joint tenant.")
If other courts follow this ruling, it may help many California residents who have created revocable "living trusts" but failed to take any separate action to implement the trust.
However, the general rules pertaining to conveyances of property should be strictly followed to avoid disputes and to avoid the expense of court actions to confirm the trust.
Anyone who creates a living trust should take care to transfer their assets properly into the trust, and to acquire new property in the trust name. Although the procedure used in the Heggstad case is cheaper than a formal probate proceeding, it is still more costly than administration of a properly-funded trust.
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