An important part of the estate planning process is taking inventory of what you own. If you own or operate a business, for example, you need to make sure it is clear which assets belong to the business and which belong to you as an individual. If you create a revocable living trust as part of your estate plan, it is imperative that any assets you move into the trust are properly re-titled in the name of the trustee.
If you fail to take these steps when creating your estate plan, there may be unnecessary delays or litigation involving your trust and estate. This can not only deplete any assets you wish to leave to your heirs, it can also place the people charged with carrying out your estate plan in danger of being held personally responsible if something goes wrong. A recent California case illustrates one such scenario.
Disputed Ownership, Boundaries May Leave Trustees Liable
Donald C. Cornelius was a successful journalist from Chicago who became famous in the 1970s as the creator, producer, and host of the long-running music program Soul Train. Cornelius managed his business assets through an Illinois corporation, Don Cornelius Productions Inc (DCP). In 2012, police found Cornelius dead in his Los Angeles home, the result of a self-inflicted gunshot wound. A subsequent autopsy revealed Cornelius “had developed seizures due to an aneurysm 15 years earlier.”
Unfortunately for Cornelius’ two sons, their father’s death was just the beginning of their troubles. The sons assumed their father’s home was officially titles in the name of DCP. Acting on that assumption, they agreed to sell the house. The buyer signed a sales contract with DCP.
But a title search discovered DCP did not own the house. Rather, Cornelius transferred it into his revocable living trust some years before his death, but for some reason he failed to file a deed marking the transfer. In addition, DCP lost its authority to operate in California about five years before Cornelius died, meaning the company could not legally buy or sell real estate in the state.
There was another legal problem with the Cornelius home. The owners of the adjacent property claimed ownership of approximately 1,400 square feet legally titled as part of the Cornelius property. They filed legal action to “quiet title” to this parcel.
Eventually, a California probate court granted a motion by Cornelius’ sons to re-title their father’s house in the name of the trust—this is known as a Heggstad petition in California—and the sons, now acting as trustees, granted the neighbors an easement with an option to purchase the disputed 1,400 square feet. This did not sit well with the person who agreed to purchase the Cornelius house. The trust’s ongoing legal problems ended up delaying the closing of the sale by more than three months, leading the buyer to demand arbitration, as was provided for in the original sales contract.
The arbitrator ended up siding with the buyer. The problem was the arbitration award was against DCP, the seller named in the contract, rather than the trust. (DCP, incidentally, no longer exists, having been dissolved by Illinois officials in 2013.) The buyer then brought a number of legal actions in an attempt to hold the trustees—the sons—liable for the arbitration award. In a December 2015 decision, a California appeals court held the buyer could present its arguments to a lower court, ensuring this dispute will continue for the foreseeable future.
Need Help with Estate Planning?
The above case illustrates what can happen when a person fails to properly re-title assets they intend to transfer into a trust. That is why before making a trust or any similar arrangements you should speak with an experienced San Diego estate planning attorney. Contact the Law Office of Scott C. Soady today if you need assistance with any estate planning matter.