February 13th, 2019
Most folks by now understand the necessity of avoiding probate Palos Verdes homes and South Bay real estate as well as the strategy for doing this; the Living Family Trust.
I read an article today that deals with when refinancing a home held in a trust, many lenders requirement to transfer title out of the trust, forgetting to put back in the trust after the refinance closes and then the owner dies…what happens then?
Paul Horn, an attorney specializing in probates, wrote this article which I read today. If you scroll down, I included a Spatial Match Map which shows you the properties for sale that are probate in nature. Meanwhile for more information on Palos Verdes Probate property, strategies for buyers and sellers, visit this link
Avoiding Probate Palos Verdes Homes
Heggstad Petition to Avoid Probate
Most homeowners understand that their heirs will not have to deal with the California probate process if their homes are placed in a living trust. One of the main reasons why most homeowners create a living trust is to avoid probate because the probate process is costly and time consuming. When a living trust is created, normally the probate attorney will draft a trust transfer grant deed to transfer the house into the living trust (making the living trust the owner of the house). When the creator of the living trust dies then the children will have the option of selling the house without having to go through the probate process.
However, after creating the living trust, many times, the creators of the trust decide to refinance their home to get a lower interest rate on their mortgages. During the refinancing process, the lenders will require that the title to the home be transferred back into the individual names because the lender wants to legally bind the actual person who is the owner of the house. After the refinancing process is completed, the owner is allowed to transfer title of the home back into the living trust. Unfortunately, after the refinancing is done, the trust creator often forgets to transfer ownership of house back into the trust. Then, when the heirs (children) want to sell the house, the question arises as to whether a probate is necessary since the home was in the living trust before the refinance, but the home is now outside the trust. The California Court of Appeals has decided the answer in a famous case: The Estate of Heggstad. No probate is needed because California courts now allow an alternate and cheaper court procedure known as the “Heggstad Petition”.
What is a Heggstad Petition? In 1989, Mr. Heggstad created a revocable living trust and listed all of his real estate in Schedule A of his trust documents. The important language of his trust shows that he intended for all of his property to be part of the trust, as documented in Schedule A of the trust. Mr. Heggstad died about a year later and as the heirs were fighting over the properties, they discovered that a certain piece of real property was not titled in the name of Mr. Heggstad’s trust. The house was mentioned in the trust documents but had not been legally transferred into the trust. The heirs took the case to the California Court of Appeals and the court found that it was sufficient that Mr. Heggstad listed the property in his original trust documents and allowed the heirs to avoid probate on that piece of real property even though a grant deed was never executed transferring the property into the trust. This famous 1993 case stands for the proposition that as long as the trust shows specific written intent that it was the trustor’s wish that the home be part of the trust’s assets, then the court will validate that the home as part of the trust assets and the successor trustee can sell the house without going through the probate process. This example of refinancing and countless other situations where the trust creators inadvertently left the house out of the trust happened so frequently that the problem was finally addressed by the California lawmakers in Probate Code Section 850. This California Probate Code Section 850 allows the transfer of real property into a revocable trust after the death of the trust creator where title to such real property was not properly titled in the name of the trust before a person’s death. (The Heggstad situation)
The Heggstad Petition is a very powerful tool to avoid probate. But do not make the mistake of thinking that it is not necessary or imperative to change the title vesting to the name of the living trust. Having to use the Heggstad Petition will delay the selling of the house because it requires a court hearing, not to mention the attorney fees that could have been easily avoided by simply remembering to change the title of the home back into the living trust after the refinancing is completed.
California Probate Timeline
- File the “Probate Petition” at the courthouse (1st to 2nd month)
- Notice of the first court hearing date published in the newspaper of general
circulation in the decedent’s resident city and notice mailed to all heirs and named
beneficiaries (Immediately after filing of the Probate Petition)
- First court hearing date is held (approximately 5 weeks after filing the Probate Petition)
- Issued Bond — if ordered by the judge (2nd to 3rd month)
- “Letters” & “Order” appointing the Personal Representative are issued (2nd to 3rd month)
- Personal Representative opens an estate’s bank account with the estate’s EIN tax identification
- Personal Representative gathers all assets and inventories for safe keeping (0 to 3rd month)
- “Notice to Creditors” form sent to all reasonably known creditors and the applicable
government agencies (2nd to 4th month)
- Real estate properties are sold (3rd to 4th month if Full Authority is granted under the IAEA) >>>Full Authority>>>>>>Notice of Proposed Action>>>>Closed Escrow
- “Inventory & Appraisal” form filed with the court (4th to 6th month) — After the probate referee has been appointed/assigned by the court
- Selling Property under >>>Limited Authority >>>Must Sell for at least 90% value of the Inventory & Appraisal Form>> Court Confirmation >>>Close Escrow
- “Change in Ownership Statement Death of Real Property Owner” Form filed with the County Recorder (4th to 6th)
- “Claim for Reassessment Exclusion for Transfer between Parent and Child” Form filed with the County Recorder (4th to 6th) — Proposition 58. Proposition 193 Grandparent to Grandchildren
- Debts are paid (4th to 6th)
- Taxes paid (6th to 12th month)
- Petition for Distribution is filed (8th to 12th month)
- Second court hearing date for distributon (9th to 12th month)
- Order signed by the judge allowing distribution to heirs (9th to 12th month)
- Distribution to heirs/beneficiaries (9th to 12th month)
- Receipt on Distribution from the Heirs that they received the money distribution (10th to 12th month)
- Ex Parte Petition for Final Distribution and Order sign by the judge (10th to 12th month)
- Case closed (10th to 12th month)
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