As any estate planning lawyer can tell you, a living trust can help you avoid probate, as assets in a trust do not pass under your will, which can save your heirs time and money. However, an improperly executed trust can lead to unnecessary confusion and even litigation.
Courts Sort Out Conflicting Trusts
Trusts do not fund themselves. Once you create a trust you must legally transfer title of your assets to the trustee (which is usually yourself). If you later decide to revoke the trust, you must similarly transfer title from the trustee back to yourself as an individual.
It is possible under California law for a probate court to infer a person’s intent to transfer property into or out of a trust, but as you might imagine, that usually requires extended litigation. Here is a recent case in point. A Sacramento woman passed away in 2012. Her heirs produced two separate, conflicting trusts. The courts had to decide which one was in effect at the time of her death.
The decedent created her first trust in 2004. She subsequently signed a deed transferring her home into the trust. The trust itself provided that upon the decedent’s death, the house should go to her daughter, or if her daughter had already died, to her grandson.
In 2007, the decedent created a new living trust. An attached schedule listed her home–the one that legally belonged to the 2004 trust–as part of the new trust. Unlike the prior trust, the 2007 trust specified the house should go to her son instead of her daughter or grandson.
However, the decedent never filed a deed transferring the house from the 2004 trust to the 2007 trust. So after she died, a dispute arose among her relatives over which trust actually owned the property. A probate judge ruled for the 2004 trust, but the California Third District Court of Appeal later reversed in favor of the 2007 trust.
Under California law, it is “sufficient by itself to create a trust without the need for a separate conveyance of the property by deed,” the appeals court explained. Since the decedent was the trustee of both the 2004 and 2007 trusts, she unquestionably had the legal authority to transfer the house from one trust to the other. Her signature on the 2007 trust was therefore enough to legally transfer title into the new trust, even if she failed to file a new deed.
Getting the Details Right
That said, the lesson of this case is not that you should overlook legal formalities. To the contrary, the decedent’s failure to do so sparked litigation that continued nearly five years after her death. This scenario could have been avoided had she simply filed a new deed when she executed the 2007 trust.
Details like this matter in estate planning. That is why if you need to create a new will or trust you should work with an experienced San Diego estate planning attorney. Contact the Law Office of Scott C. Soady today to schedule a consultation.