WHAT HAPPENS WHEN PROPERTY IS NOT DEEDED INTO A TRUST

Written by Bob Hunt

LukeThese days it is not unusual for people to hold their real estate and other assets in a trust. Regrettably, it is also not unusual for many of the same people to neglect to actually place their assets into that trust.

This can happen when one acquires a new parcel of real estate. For example, the mortgage lender may not want the borrower to be a trust, so the buyer acquires the property as an individual or couple, intending to deed the property to the trust later. Then they forget to do so. Frequently, this happens when a property is refinanced. It is taken out of the trust for the refi; then the owner(s) forget to put it back in.

 Obviously, such forgetfulness can cause problems later on. The original creators of the trust pass on, and it is up to the successor trustee to dispose of the assets and distribute the proceeds (or whatever is specified in the will). Only the successor trustee can’t sell the house (or boat, or car) because it was not put into the trust.

A recent ruling by California’s Fourth Appellate District Court of Appeal (Ukkestad v. RBS Asset Finance, March 16, 2015) contains some good news for those (or, the heirs of those) who forget to place assets in their trust.

The Appellate Court summarized the facts of the situation as follows:

“Larry Gene Mabee, who died on December 16, 2012 executed a First Amendment and Complete Restatement of the Trust on December 7, 2012 (the Trust Instrument), appointing himself as the trustee. On that same date, Mabee also executed a will, which contains a pour-over provision giving the residue of the estate to the trustees of the Trust.

Mabee owned two parcels of real estate that are the subject of this appeal: (1) a parcel at 1025 East Bobier Drive, in Vista, California; and (2) a parcel known as 80501 Avenue 48, Space 114, in Indio, California (collectively, the Two Parcels). According to the grant deeds, title to the Two Parcels was held by Mabee as an individual.

The Trust Instrument does not describe the Two Parcels by reference to any specific identifying information unique to those properties, such as the address or legal description of the Two Parcels. Although not specifically identifying the Two Parcels, the Trust Instrument generally states that Mabee assigns the ownership of all of his real property to the trustees of the Trust effective immediately.”

Subsequent to Mabee’s death, successor trustee, Daniel Ukkestad, endeavored to follow a procedure that, for many years, has been in place in California for situations when a decedent’s property had been intended to be in a trust, but had not been properly titled.

Ukkestad “filed a petition under Probate Code Section 850, subdivision (a)(3) for an order confirming that the Two Parcels are part of the Trust’s assets, premised on … language from the Trust Instrument.” That language said in part, “The Grantor, by the 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…”

The probate court was provided with deeds showing that Mabee was the owner of the Two Parcels.

The Probate Court denied the petition for an order confirming that the Two Parcels were trust assets. The Trust had a declaration, but that declaration did not specifically refer to the Two Parcels. Without a specific description, the Probate Court held that they could not be confirmed as assets of the Trust.

But the Appellate Court reversed the decision of the Probate Court. Reviewing earlier cases, the Appellate Court noted that “our Supreme Court recently endorsed a ‘flexible, pragmatic view,’ under which uncertain written contractual terms comply [with the requirement of certainty of meaning] as long as they can be made certain by reference to extrinsic evidence…” As an earlier case had put it, “the governing principle is: ‘That is certain which can be made certain.'”

In the case at hand, the Appellate Court said, “the Trust Instrument contains language that identifies which of Mabee’s real property is being conveyed to the trust. Specifically, in the Trust Instrument, Mabee refers to ‘all of his real and personal property, including … real property …, wherever situated.” From there they went on to observe, “it is a simple matter of referring to publicly available records to determine Mabee’s real estate holdings.”

What do we take away from this? The lesson is certainly not, “you don’t need to bother to deed your real estate into your trust.” Specifically identifying property in the trust (or in an attachment) and correctly placing it in the trust is still the best practice. But Ukkestad also lets us know that even if we don’t do everything right, there’s still a chance of a good outcome in these situations.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.