Asset not in trust after death… let’s Heggstad it!

Calls are coming in almost daily from people who are administering their parent’s, or other loved one’s, trust after death.  The calls are sounding similar… “my dad died and his stocks were not in the trust” or “my mom died, she had re-fi’d her house but never put it back in the trust.”  I get countless others just like this; calls, emails, and in-office meetings.

As an estate planner I try hard to help my clients get all their assets into their trusts but, of course, stuff is often omitted after death.  People forget about things, people change title or change assets, people re-fi their house, and (my favorite) people assure me it’s in the trust and I should not spend a dime checking their deed to verify if it’s in the trust.

Sadly the loved ones are faced with finding a way to get the asset into the trust after death and, like most of us, they want to avoid probate! Well, it’s hard to avoid probate if you have real estate or other assets exceeding $100,000, out of the trust, after death. In those cases there will be some type of probate Court action.

I always analyze the documents, and assets, with a Heggstad petition in mind. That’s my first thought, my go-to move, my bread and butter! I have successfully performed dozens of Heggstad petitions throughout California; including but not limited to: Sacramento, Placer, Yolo, El Dorado, Sonoma, Los Angeles, Santa Clara, San Mateo, Solano, Riverside, San Bernardino, San Joaquin and the list goes on and on.  I have actually successfully performed Heggstad petitions in a majority of California counties!

When a Heggstad doesn’t work we have other options but if your documents support a Heggstad it should be your attorney’s first move for sure! Look for written intent to include the assets in the trust. The best intent is an asset clearly identified on a signed schedule of assets attached to the trust. Next best would be something else in the trust clearly identifying the asset specifically.  Then look to non-trust documents that clearly idetify the asset. Lastly, a “general transfer” or other statement of intent.

In the end if you have an asset out of a trust, after death, and your attorney did not mention the word “Heggstad” to you I suggest you ask them why.

If you want me to evaluate your case to see if a California Heggstad petition would work for you let me know!


How simple is a simple trust?

I am preparing some notes for a presentation I am making next week to some CFP students at UC Davis Extension. I have taught the whole 10 week class, in estate planning,  before.  This time I will be a guest lecturer in the tax class for CFP students. I will talking about the taxation of trusts and estates. One chapter I will be lecturing on is entitled “Simple v. Complex Trusts.”  Now most of my clients do not consider these issues at least not by these terms. However, your attorney may discuss it with you or, at least, they will think about it when they set up your trust… or at least they should. Let’s discuss….

When you write a trust there are two main ways to handle the distribution of income from the trust. This is typically an issue for after you die and how money should be distributed to your children or other loved ones. The distribution can say that “all income shall be distributed” at least annually or that “all income may be distributed” at least annually.  Wait a minute you say… what’s the difference!?  “May” v. “shall” is the difference.

Yes, it’s really that simple.  The issue of simple v. complex has nothing to do with how many pages your trust is, or how much legalese is used, but rather these simple little words.  In a simple trust all income SHALL be distributed at least annually. By distributing all income the trustee files a 1041 fiduciary income tax return and sends out a K-1. The K-1 will show all income being attributed to the underlying beneficiary and will be reported on their 1040. In a complex trust the trustee has the option to distribute the income and thus the income is taxed within the trust at the trust tax rates.  These rates are higher than the individual income tax rates.

If the income tax rates are higher why would anybody do a complex trust? There are many reasons but most notably it provides better asset protection. If the trustee is required to distribute the income there is no asset protection for those distributions and thus the trustee could be required to distribute them to your creditors.  On the other hand, if the trustee has the option of distributing the income that means she has the option to NOT distribute the money and thus opt to NOT pay a creditor that is hounding you. There may be other reasons but to me this is the most significant.

Yes, it’s that simple!

Send me an email or call me with any questions, be it simple or complex!


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10.0John Bernard Palley
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