A Huge Change in Trust Funding Implications and Heggstad Petitions (Ukkestad v. RBS Asset Finance)
A Trust is an entity of sorts to which one's assets are transferred. When the creator of the Trust becomes incapacitated or deceased, the designated Successor Trustee takes over the administration of the Trust, and hence, all of the Trust assets (i.e., all of the assets that are properly transferred to the Trust). This concept of transferring assets to one's Trust ("funding the Trust") has always been a fly in the soup of attorneys and clients alike: not because of the difficulty of transferring such assets, but the dramatic consequences of not having assets properly funded. The opportunities created by the Heggstad case of 1993 have always been a popular fallback in situations where real estate was intended to be transferred into the Trust, but the title on such property did not reflect Trust ownership. Given the fact title on real estate is often changed during re-financing, not having the title correctly in the name of the Trust is a situation we encounter all too often. But as much as Heggstad is thought of as a savior to this predicament, it has a fly in its own soup...a problem that Ukkestad v. RBS Asset Finance remedies. The implications of Ukkestad completely change the opportunities available for Trust administrators to address this very common problem.
Before we jump into Ukkestad, let's discuss briefly the mechanics of how Heggstad works. In Heggstad, the decedent created a Trust, but failed to properly change title on a 34.78% interest in a real estate holding. Although the title on the property in question was in his name individually (as a tenant in common with other investors), Article 1 of his Trust provided that the decedent "declare[d] that he [had] set aside and transfer[ed] to [his] Trust, as Trustee, the property described in Schedule A attached to this instrument." Prior to Heggstad, such a declaration is of no consequence given the fact actual title to the property did not reflect the intent of such statement. Without getting into the nitty gritty of the court's reasoning, Heggstad ruled that although the title did not reflect trust ownership, the declaration made in the Trust was sufficient to express appropriate Trust ownership of the real estate. (For ease of discussion, I am skipping over all of the analysis in Heggstad, and just moving on to the concluding decision and rule of law).
Since 1993, Successor Trustees all over California have filed Petitions under Probate Code Section 850 relying on Heggstad to allow a post-mortem transfer of real estate into a Trust. One of the problems one encounters under Heggstad though (and this is the fly in the soup I was referring to), is that the property in question needs to be specifically described to satisfy the legal requirements of an appropriate transfer (this requirement is necessary, and the reasoning is buried in the courts analysis in Heggstad). Why this presents a problem, is that most Trusts have general declarations, outlining an intent to transfer "all property, both real and personal" to their Trust, and seldom refer to specific items, accounts, or parcels of property. Without these specific identifications, such a declaration fails to meet the requirements set forth in Heggstad, thus making the opportunity worthless.
In Ukkestad the decedent owned two items of real property, and neither title reflected ownership. The Trust did have a declaration, but the declaration did not specifically mention or describe the two particular properties. At the trial level, the Court held that without the specific descriptions, a post-mortem transfer under Heggstad was impossible, and denied the petition. Petitioner appealed. Surprisingly, the appellate court did hold that the declaration was, in fact, sufficient to transfer the properties into the Trust post-mortem. Although the Ukkestad court laid out their decision over ten pages, I will try to summarize how they arrived at this new view.
The issue in dispute in Ukkestad is whether the declaration in the Trust is sufficient to comply with the requirement that the property in question be adequately described. The declaration in the Trust in question read as follows: "The Grantor (i.e., the decedent and creator of the Trust), by execution of this instrument, hereby assigns, grants and conveys to the Trustees of this instrument all of the Grantor's right, title and interest in and to all of his real and personal property...and all other property owned by the Grantor, wherever situated."
The court first looked at a 2007 case, Sterling v. Taylor, which clarified a legal principle: "That is certain which can be made certain." The court explained this with the following: "If a memorandum includes the essential terms of the parties' agreement, but the meaning of those terms is unclear, the memorandum is sufficient under [the law] if extrinsic (i.e., outside) evidence clarifies the terms with reasonable certainty and the evidence as a whole demonstrates that the parties intended to be bound."
A case that demonstrated the application of the very principle addressed in Sterling is a 2003 case, Alameda Belt Line v. City of Alameda, which held that a contract for the purchase of a rail line sufficiently described the property even though the description was limited to, "belt line railroad including all extensions thereof." since the parties could consult outside evidence, including business and legal records, and undeniably arrive at what that description included. Although Alameda addressed the issue of a sales contract, the underlying legal principle--the Statute of Frauds (which I have intentionally failed to mention for purposes of clarity), is the same legal principle at issue with transferring property into a Trust.
Going back to Ukkestad, we see that the level of description, however vague (e.g., "all of the Grantor's right title and interest in and to all of his real and personal property...wherever situated"), is still able to be made certain per Sterling given the fact the declaration refers to "all" his real property. By referring to outside legal titling documents, as was done in Alameda, to any property owned by Ukkestad, it can be ascertained, or made certain (as Sterling describes) that every single parcel of real estate that Ukkestad owned was sufficiently described by the declaration, as it would be "all" his property.
Pulling in the reigns a little bit, the court in Ukkestad referred to a 1996 case , Osswald v. Anderson where the facts and issues were similar to Ukkestad, except for the pivotal fact that the declaration in the Trust in Osswald did not refer to "all real property," but rather "all real property described on the attached 'Exhibit A'." The problem is that there was no attached "Exhibit A" or any reference to any listing of properties. In briefly analyzing Osswald, the court in Ukkestad noted that this missing "Exhibit A" could include one or more of the properties, or none of the properties at all. The fact that there was an intended list, could not automatically make certain what was on that list. As so, Ukkestad stated that a similar finding in Osswald would be impossible.
Where does this leave us? First of all, Heggstad petitions will be a lot easier to approve without the requirement of specific description of each item of property. Also, drafting styles should change to reflect Ukkestad. Most Trusts have a general declaration of intent to transfer assets to a Trust, but implementing encompassing language (such as, "all") should be heavily considered. A little more aggressive, would be to begin to shy away from the strategy of trying to maintain a schedule of assets, which can clearly become dated and inaccurate relatively quickly.
But in the end, this is all a backup option to how a Trust should properly be managed. Careful consideration should be given to ensuring one's assets are always transferred into one's Trust, but as a precaution, a declaration implementing the verbiage of Ukkestad would be a well-considered addition to any Trust.