How to Handle Real Property That Wasn’t Titled in the Trust

One of the most common goals of creating a living trust is to avoid the probate process for your real estate. But what happens when a property is mistakenly left out? This situation is more frequent than you might think. And what most people don't realize is that attempting to fix a trust funding error without legal guidance can lead to costly mistakes and family disputes. 

At Davidson Estate Law, our experienced attorney has spent over 25 years guiding families through situations like this. We provide clear, compassionate legal counsel to clients throughout the Bay Area, including Oakland, Walnut Creek, Berkeley, San Francisco, El Cerrito, and Alameda. We are here to help you understand your options and find the most efficient path forward. 

A living trust is a powerful tool for managing your assets. It allows you to designate a successor trustee who can distribute your property to your beneficiaries without court supervision. For this to work seamlessly, however, you must transfer ownership of your assets into the trust. This is called "funding the trust."  

For real property, such as your home, this involves signing a new deed that transfers the property from your name to the name of the trust. When this step is overlooked, the property is not technically part of the trust estate upon your passing, which can complicate matters for your loved ones. 

Why Does Property Get Left Out of a Trust?

Discovering that a valuable piece of real estate wasn't properly titled in a trust can be a stressful moment for a successor trustee. Several common reasons can lead to this oversight. Understanding them can help you see how easily it can happen. 

Simple Oversight 

The most common reason is simple human error. The person who created the trust (the grantor) may have intended to transfer the property, but forgot to complete the final step of signing and recording a new deed. Life gets busy, and important administrative tasks can sometimes fall through the cracks. The grantor might have assumed their attorney handled it, or they may have planned to do it themselves and never got around to it. 

Refinancing a Mortgage 

Another frequent cause is refinancing. When you refinance a mortgage on a property held in a trust, many lenders require you to take the property out of the trust and hold it in your personal name during the loan process. The problem arises when, after the refinance is complete, the property is not transferred back into the trust. The homeowner often forgets this final, important step, leaving the property outside the trust's protection. 

New Property Acquisitions 

If a person creates a trust and then later acquires new real estate, they must remember to title that new property in the name of the trust. If they purchase it in their individual name and neglect to execute a new deed to transfer it, that new property will not be included in the trust estate. 

What Are the Options When Property Is Left Out?

When a successor trustee finds that a home or other real estate was not funded into the decedent's trust, they are not without recourse. The available options depend largely on the circumstances and the language of the trust documents. 

Using a Pour-Over Will

A well-drafted estate plan usually includes a "pour-over will" in addition to the living trust. This special type of will acts as a safety net. Its primary function is to "catch" any assets that were not funded into the trust during the grantor's lifetime and "pour" them into it after their death. 

If a pour-over will exists, the successor trustee (who is often also named the executor of the will) will need to open a probate case. The will is submitted to the probate court, and once validated, the court will issue an order to transfer the property into the trust. While this does involve the court, the process is often more direct than a full probate because the will simply directs the property to the trust, which then governs its ultimate distribution. 

The Heggstad Petition 

In some situations, a court proceeding known as a Heggstad Petition may be a viable option to avoid a full probate. This legal action asks a California court to declare that the real property is, in fact, a trust asset, even though a formal deed transfer was not completed. 

To be successful, a Heggstad Petition requires clear evidence that the grantor intended for the property to be part of the trust. This evidence is typically found in the trust document itself. Most trusts include a schedule of assets, which is a list of property intended to be held by the trust. If the specific property is listed on this schedule, even if the deed was never changed, a court may issue an order confirming that it is a trust asset. This process is generally faster and less expensive than a formal probate proceeding. 

A Full Probate Proceeding 

If there is no pour-over will, and a Heggstad Petition is not an option, the property will likely have to go through a full probate process. The property will be treated as if the person died without a will (intestate) or according to the terms of a will that does not pour over into the trust.

Under California's intestacy laws, the property will pass to the decedent's closest living relatives, which may or may not align with the decedent's wishes outlined in the trust. This is typically the most time-consuming and expensive outcome. 

California Law and Unfunded Property

California provides specific legal avenues for dealing with property mistakenly left out of a trust. The Heggstad Petition is a prime example, originating from the 1993 California court case Estate of Heggstad. In that case, the court ruled that a written declaration of trust was sufficient to establish the grantor's intent, even in the absence of a formal deed. This ruling established a precedent that has helped countless families in the state. 

California Probate Code § 850 also allows a trustee to petition the court to transfer property into a trust if they can show the decedent intended for it to be included. This is the legal basis for the Heggstad Petition. The success of such a petition rests on the quality of the evidence presented.  

A clear schedule of assets attached to the trust is the strongest piece of evidence. Other documents, such as written instructions or personal letters expressing the grantor's intent, might also be used to support the petition. Working with an attorney who understands the nuances of these petitions in Bay Area courts is essential for a successful outcome. 

Estate Planning Attorney in Oakland, California

Making sure you have plans in place for the care and financial future of your loved ones is one of the most meaningful things you can do. For over two and a half decades, our estate planning law firm has been a trusted resource for families across the Bay Area. At Davidson Estate Law, we recognize how challenging these matters can be, and we are ready to assist. Whether you need to create a will, set up a revocable living trust, manage a loved one’s assets, or handle a court process, we invite you to connect with us.