A Practitioner's Guide to Heggstad Petitions

• Jurisdiction: California,United States
• Author: By Jeremy B. Crickard, Esq.
• Publication year: 2008
• Citation: Vol. 14 No. 3

A PRACTITIONER'S GUIDE TO HEGGSTAD PETITIONS

By Jeremy B. Crickard, Esq.^*

I. INTRODUCTION

Avoid probate at all costs, or perhaps more accurately, avoid all costs of probate. This is the mantra of many California estate planners. The delays, court fees and costs of formal probate administration in California lend credence to this mantra. As a result, in recent decades, the prevalence of revocable trusts in California has grown considerably.

The use of a revocable trust, however, does not guarantee that a formal probate proceeding will not be needed. Rather, to realize the benefit of probate avoidance, a person must properly title all of his or her assets in the name of the trust, a process often referred to as "trust funding." As estate planners know, trust funding is rarely a clean or simple process, and the potential for improper or incomplete trust funding is significant. As a result, persons who have created a revocable trust often leave assets titled in their name individually at the time of their death. In such case the practitioner may be able to avoid a formal probate through the use of an affi-davit,¹ petition to determine succession to real and personal property² or a spousal property petition.³ Often, however, these alternatives are not available.

Fortunately, estate planners have an additional arrow in their quiver of probate avoidance tools. Under appropriate circumstances, a practitioner may be able to rely upon the 1993 decision of the Court of Appeal in Estate of Heggstad.⁴ This article is designed to be a practitioner's guide for Heggstad petitions. After analyzing the Heggstad decision, the article discusses how to file a Heggstad petition, including procedural considerations and various fact scenarios affecting the petition's prospects for success. On the planning side, the article also considers several drafting points designed to increase the potential that a Heggstad petition would be available for a trust that was not funded completely or correctly.

II. ANALYZING THE HEGGSTAD DECISION

A. Facts

More than a year before his death, the decedent, Halvard L. Heggstad, executed a pour-over will and a revocable living trust (the "Heggstad Family Trust"). In the trust document, Mr. Heggstad named himself as the trustee and his son as the successor trustee. Attached to the trust document was a document titled "Schedule A", which listed the trust property. Item No. 5 on Schedule A listed decedent's "Partnership interest in 100 Independence Drive, Menlo Park, California."⁵

In actuality, decedent owned a 34.78 percent interest in the Independence Drive property as a tenant in common and not in a partnership. Moreover, Mr. Heggstad never deeded the Independence Drive property, in either form, to himself as trustee. Thus, Mr. Heggstad's tenant in common interest in the real property remained in his name individually. However, Mr. Heggstad did manage to transfer all other real property to himself as trustee by separate deeds. One month after executing the Heggstad Family Trust and his pourover will, Mr. Heggstad married Nancy Rhodes Heggstad ("Nancy"), but in the year before his death did not amend his trust or will to provide for his new bride.⁶

After Mr. Heggstad's death, his son, Glen, was appointed as executor and became successor trustee of the Heggstad Family Trust. In what should be a familiar storyline, Mr. Heggstad's son and his surviving spouse disagreed on how Mr. Heggstad's assets should be distributed. As trustee, Glen filed a petition for instructions pursuant to Probate Code section 17200, asserting that the trust language was sufficient to transfer the Independence Drive property to the trust, and therefore such property was not part of his father's estate. Nancy objected, asserting that a change in title was not a remedy available for a petition for instructions. Nancy also asserted that since the property was never deeded to the trust it remained an asset of decedent's estate.⁷ Nancy was not a beneficiary of the Heggstad Family Trust, but, as an omitted spouse, would be entitled to one-third of Mr. Heggstad's probate estate.⁸ After the probate court sided with Glen, holding that the trust document was sufficient to create a trust in the Independence Drive property, Nancy appealed.

B. The Ruling of the Court of Appeal

Nancy asserted on appeal that "a written declaration of trust is insufficient, by itself, to create a revocable living trust in real property, and the decedent was required to have executed a grant deed transferring the property to himself as trustee of the Heggstad Family Trust."⁹ The Court of Appeal disagreed, concluding that "a declaration by the settlor that he holds the property in trust for another, alone, is sufficient."¹⁰

C. Authority Relied Upon by the Court of Appeal

In reaching its conclusion, the appellate court analyzed what is required to create a trust. The court looked first to Probate Code section 15200, which provides as follows in relevant part:

Subject to other provisions of this chapter, a trust may be created by any of the following methods:

(a) A declaration by the owner of property that the owner holds the property as trustee.
(b) A transfer of property by the owner during the owner's lifetime to another person as trustee. . . .¹¹

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The court also looked to the common law, particularly the Restatement Second of Trusts, for additional guidance. Section 17 of the Restatement Second of Trusts provides that a trust may be created by "(a) a declaration by the owner of property that he holds it as trustee for another person; or (b) a transfer inter vivos by the owner of property to another person as trustee for the transferor or for a third person."¹² This is essentially the same language as Probate Code section 15200. The court noted that the comment to clause (a) of section 17 of the Restatement of Trusts expressly states that "If the owner of property declares himself trustee of the property, a trust may be created without a transfer of title to the property."¹³ The court also relied upon comment m to section 32 of the Restatement Second of Trusts, which provides as follows: "If the owner of property declares himself trustee of the property a transfer of the property is neither necessary nor appropriate."¹⁴ In light of these authorities, the court concluded that "there is no requirement that the settlor/trustee execute a separate writing conveying the property to the trust."¹⁵

However, with respect to real property, the statute of frauds requires that the declaration of trust must be in writing signed by the trustee.¹⁶ The statute of frauds is codified in Probate Code section 15206, which provides as follows:

A trust in relation to real property is not valid unless evidenced by one of the following methods:

(a) By a written instrument signed by the trustee, or by the trustee's agent if authorized in writing to do so.
(b) By a written instrument conveying the trust property signed by the settlor, or by the settlor's agent if authorized in writing to do so.
(c) By operation of law.¹⁷

The appellate court, relying on subsection (a), concluded that "a written declaration of trust by the owner of real property, in which he names himself trustee, is sufficient to create a trust in that property, and the law does not require a separate deed transferring the property to the trust."¹⁸ In Article One of the Heggstad Family Trust, the decedent declared that he held in trust the property described on Schedule A. The court held that this constituted a valid declaration of trust in the property listed on Schedule A.¹⁹

III. WHEN TO FILE A HEGGSTAD PETITION: INCONSISTENT OUTCOMES AND EXPANSION OF THE DOCTRINE

Not surprisingly, in the wake of the Heggstad decision, practitioners began petitioning probate courts across the state for similar relief. These "Heggstad Petitions," as they are commonly called, continue to grow in popularity. This growth has not just been numerical, but has also included attempts to expand the situations where the Heggstad decision applies. This too was to be expected, but in the fifteen years since the Heggstad decision, few published cases have provided any guidance on the parameters of Heggstad. This absence of judicial guidance has created some uncertainty among practitioners and the judiciary alike, leading to some inconsistent outcomes.

While this article cannot resolve the absence of judicial precedent, discussed below are various potential applications of the Heggstad decision. By revisiting the Heggstad decision and the authorities relied upon therein, some important guidance may be gleaned to mitigate the uncertainty for practitioners.

A. The Heggstad Fact Scenario

The most obvious situation to utilize a Heggstad petition is with a matter involving the same material facts. Namely, that the decedent created a revocable trust, naming him or herself as trustee and declaring a trust in real property specified in the written and signed trust document. Under such circumstances, a proper Heggstad petition should be successful. The result should not change if the trust was established by joint settlors.²⁰ However, as the alternative fact scenarios discussed below illustrate, varying any of the other material facts may bring a matter outside the scope of Heggstad.

B. Cotrustee

If the decedent named an additional party as cotrustee, a trust should be valid without the need for a subsequent transfer provided the remaining material facts of Heggstad are present. This result follows from the general rule that even if the trust fails as to one cotrustee, the trust is still valid in the property as to the remaining trustee, in...