Administering Real Property in Probate

A frequent point of contention in a probate case is the disposition of the decedent's residence. Assuming of course that the decedent owned a residence at death. One party may want to retain the residence for sentimental reasons and move into the property. Another party may want to sell the property because the notion of operating a quasi-partnership with the other beneficiaries is quite unappealing. Finally one party may want to lease the property to generate income because they have experience as a landlord. Each of these ideas, however, is predicated on the property being "available."

A recent unpublished appellate decision highlighted the issue of an unwanted occupant at the residence.    

"Dustan Wright, who is self-represented, appeals an order entered by the probate court on June 5, 2025, granting the estate administrator's petition to eject him from possession of a single family home located at 845 Athens Avenue in Oakland, California belonging to the deceased, Mary Bates (hereafter, the Bates residence)."

"On April 18, 2025, the administrator of Mary Bates's estate, Tyehimba Kokayi (hereafter, the administrator), filed a verified petition against Wright to recover possession of the Bates residence. The petition alleged the property belongs to the estate, Wright and others had been squatting unlawfully there for 13 years, and Wright had been "h[olding] the property hostage" from the estate and Bates's heirs by filing multiple lawsuits in propria persona and yet had lost them all, including the prior appeal. It also alleged Wright had filed a petition in the probate case claiming damages against the administrator and to remove him as administrator, and his petition had been denied. It alleged he "now seeks to start the process all over again by filing another case (25CV112257) against the same parties" and "is a vexatious litigant." The petition alleged specifically that on March 3, 2025, Wright had filed "a new complaint in Alameda case number 25CV112[2]57 against Petitioner and other parties, including the same parties that he sued" previously. It alleged that, "[a]s of the date of this Petition, [Wright] has not vacated the Estate Real Property and continues to obstruct Petitioner from gaining possession" of the property. The petition sought an order compelling Wright and other occupants to surrender possession of the Bates residence and related relief."

The appellate court, in an unpublished decision, affirmed the trial court's decision to compel "Wright and other occupants to surrender possession of the Bates residence." 

Estate of Mary Esther Bates, Alameda County Superior Court case no. RP21094469.  

Restraints on Alienation - Civil Code § 711

A sentiment often expressed by clients is for the family home to be kept "in the family" for generations. While understandable, even the best intentions can be thwarted if language in the trust runs afoul of CA law.

"Silvia Villarreal named her three children, Leticia Linzner, Arturo Villarreal, and Sonia Godoy, as the beneficiaries of her living trust, the assets of which included her longtime home. Upon her death, each sibling was to receive a one-third fee simple interest in the home. In her last amendment to the trust instrument, however, Silvia decreed the siblings could only sell their respective shares for an amount well below the market value and only to each other, citing her desire to keep the home in the family. After Silvia passed, Arturo and Sonia petitioned the probate court, in part, for an order determining the trust instrument unreasonably restrained their ability to alienate their interests in the real property. Over Leticia's objection, the court granted Arturo and Sonia's requested relief and declared the amendment void. Because Silvia's amendment imposed an unreasonable restraint on alienation in violation of Civil Code section 711, we affirm the probate court's order."

"Section 711 only invalidates unreasonable restraints on alienation. (See Carma Developers, supra, 2 Cal.4th at p. 355.) As discussed, when a restraint on alienation encumbers a fee simple interest, the restraint is typically unreasonable because it tends "to defeat the very purpose of the interest created." (Id. at p. 358; see Murray, supra, 64 Cal. at p. 367.) Such is the case here. The trust instrument conveyed the Property in fee simple, which vested the siblings with the right to freely alienate their respective interests. But that right is sabotaged by the language in the 2019 amendment restricting any sale of the interests to $100,000 and only amongst the siblings."

"Although the 2019 amendment does not completely foreclose all alienation, the probate referee's valuations of the Property—$1.05 million at the time of Silvia's death and $1.3 million as of December 2022—indicate the siblings stood to lose hundreds of thousands of dollars if forced to limit a sale of their one-third interests to $100,000. The quantum of restraint is even greater considering a sale could be made in a market of only two possible purchasers. While Silvia meant for these restrictions to ensure the Property stayed in the family, that justification—even if legitimate and well intentioned—does not overcome the heavy presumption in favor of alienability. Thus, the probate court did not err in declaring the 2019 amendment void as an unreasonable restraint on alienation of the siblings' respective interests in the Property."

Godoy v. Linzer 106 Cal.App.5th 765 (2024)

Real property held in Joint Tenancy

When real property is held in joint tenancy, an interest in the real property generally passes to the surviving joint tenant automatically when a joint tenant passes away. Due to the nature of joint tenancy, it has been called a "poor man's will." Estate of Propst (1990) 50 C3d 448, 464. However, just like a will, the creation of a joint tenancy can be challenged under various legal theories. A recent unpublished appellate opinion involved such a scenario. The daughter of a deceased joint tenant objected to the joint tenancy's creation mere days before the deceased joint tenant passed away. A picture of the deed that created the joint tenancy is to the right.

"Five days before her death in 2015, Joanne Magdaleno transferred title to certain real property (the property) from herself to her ex-husband James Handelin and herself as joint tenants. In 2020, Magdaleno's daughter Andrea Wood, in her capacity as administrator of the estate, filed a petition under Probate Code section 850 for an order declaring the property an asset of the estate and for damages against Handelin, asserting among other things that Magdaleno had lacked the mental capacity to sign the deed and that Handelin had engaged in fraud and undue influence. The probate court ultimately sustained Handelin's demurrer to a first amended petition without leave to amend, concluding that Wood's claims were time-barred."

"The first amended petition alleged the following: Magdaleno divorced Handelin in 2014. Handelin signed a quitclaim deed as to the property the same year. In 2015, Magdaleno was hospitalized for three weeks with pneumonia. She was under heavy medication. Five days before she died, on April 13, 2015, she signed a deed granting to Handelin and herself title to the property as joint tenants. Magdaleno did not have mental capacity to understand what she was doing when she signed the deed. Handelin had the deed prepared, and he unduly influenced Magdaleno to sign it. He made false representations to Magdaleno to induce her to sign the deed. Magdaleno's signature on the deed was partial and the name on the deed was not the name restored to her upon her divorce. Wood did not discover the existence of the deed until after March 31, 2017."

On appeal, the appellate court held that Ms. Wood should have had the opportunity to amend her petition and reversed the trial court's ruling.

Wood v. Handelin, Shasta County Superior Court case # 30146

Renting the Residence

In a typical estate administration case, whether a trust or probate, real property is involved. If the real property is vacant, the question then becomes  whether to rent the residence or not until the property is sold or distributed to the beneficiaries.

A recent unpublished appellate decision touched upon the co-trustees' unwillingness to rent the decedent's residence given the circumstances.

"When Loucks died in 2006, Trust assets were valued at nearly $9 million. Among the Trust's properties was Loucks's Camarillo residence. The residence was built in the 1950s, and was virtually unchanged over the next six decades: The carpet was worn, the walls were "dripping with . . . nicotine" from cigarette smoke, the septic tank was unusable, and the plumbing and electrical systems needed to be replaced. There was no hot water, no heat, and no air conditioning.

The exterior of the residence was similarly dilapidated. There was fungus and dry rot around the eaves. Shrubs and trees were overgrown. Rodent holes riddled the backyard. The pool—which was just inches from the residence—had begun to sink."

Following the property's sale, a beneficiary sued the trustees for essentially lost profits since they opted not to rent the residence from 2007-2014. 

The beneficiary's "expert witness testified that the Trust could have earned more than $330,000 from renting out the residence from 2007 through 2014."

However, the trial court disagreed and held that the co-trustees' decision to not rent the residence was reasonable under the circumstances. This decision was upheld by the appellate court. 

"Substantial evidence supports the probate court's determination that the co-trustees acted reasonably and in good faith when they declined to rent out the residence between 2007 and 2014. The evidence admitted at trial showed that the residence was uninhabitable and in need of more than $80,000 in repairs. Those repairs would have had to be completed before the residence could be rented. And once completed, there remained safety and liability concerns due to the unsecured pool at the residence."

One common theme when I've represented trustees is a beneficiary's tendency to emphasize the benefits but not adequately account for the burdens. This is natural because the beneficiary is not the responsible party, rather the trustee shoulders the liabilities. Hence the mindset of the trustee will invariably differ from that of the beneficiary.

In this case the beneficiary was adamant, as evidenced by them litigating this issue, that renting the residence was reasonable. However, the beneficiary was not responsible for renovating the property to make it habitable. Rather, the trustee was responsible for the renovations. Since the cost of renovations was significant, $80,000, the co-trustees acted prudently when they opted to forego renovation and renting the residence.     

Walstad v. Maloney, case # 56-2016-00479026-PR-TR-OXN, Ventura County Superior Court

Selling Real Estate

The sale of real estate in an estate matter, whether trust administration or probate, is a very common occurrence. 

Typically the beneficiaries will prefer the cash over real estate because of the flexibility that cash provides. This cash can be used to invest in other financial instruments such as stocks, bond, mutual funds, annuities, etc. Furthermore, the beneficiaries are not "in business" with the other beneficiaries in managing the property. One question I commonly pose to beneficiaries who are set to inherit real estate is "do you want to liquidate or retain the property with the other beneficiaries (invariably relatives) and operate as a quasi-partnership?" The response is practically universe, sell.

If the estate's representative is tasked with selling real estate, prudence is naturally expected of them. 

A recent appellate opinion highlighted the failed efforts of an administrator to sell real estate.

"Armuress's expert witness testified Rogers did not effectively market the estate's land holdings in the years after the probate court's 2001 ruling. Rogers removed parcels from the active listings for periods of time and failed to adjust the asking price when the market for similar undeveloped land dropped considerably. At the time of trial, the properties were listed for a total asking price of more than $9 million, but the expert opined the property was worth no more than $6.1 million and the inflated asking price meant the property was effectively off the market. Rogers's expert provided contrary testimony, for sure, but the record supports the probate court's conclusion that "the weight of [the] evidence" showed the properties had been marketable since 2001 yet Rogers failed to sell them."   

Estate of Sapp (2019) _____ Cal.App.4th _____

A conclusion from the case would be that to reasonably market real estate, the estate's administrator needs to be mindful of current market conditions. If the real estate market is soft, the price should be dropped to reflect the lack of demand at the current price. Conversely, if the real estate market is competitive, the price could remain as-is.

For context, the opinion noted that it had been 15 1/2 years since the administrator was instructed to sell the properties and failed to do so. While the administrator "sold four parcels in 2004, in the 12 years that followed she had failed to sell the remaining nine parcels."  

Transferring Trust Property

One of the primary rules when administering a trust is for the trustee to follow its terms. Probate Code §16000, Penny v Wilson (2004) 123 CA4th 596. For example, if the trust provides for an equal distribution of trust assets to 4 beneficiaries, then logically each beneficiary would receive a 25% interest. A trustee cannot simply deviate from the terms of the trust arbitrarily.

A recent unpublished appellate opinion detailed the interesting story of one trustee. 

Kiwata v. Kiwata, San Francisco County Superior Court, Case # CGC14542957   

"Years ago, Richard and Howard's parents, the Kiwatas, and their aunt and uncle, the Hironakas, acquired property in San Francisco on Collins Street. Each couple initially had a one-half interest in the property.

The Kiwatas transferred their interest into the Kiwata Family Trust, of which Richard became the trustee.

The Hironakas first transferred their interest into the Hironaka Revocable Trust and then, in late 2008 after the death of one of the Hironakas, partly into the Hironaka Family Trust (65.41 percent of the one-half interest) and partly into the Yoshiko Hironaka Surviving Spouse's Trust (34.59 percent of the one-half interest). Over several years, ending in May 2013, a series of deeds resulted in absorption of the survivor trust's interest into the family trust, such that the Hironaka Family Trust eventually owned all of the one-half interest. Upon the death of both Hironakas, Howard became the trustee of the Hironaka Family Trust, with Richard as successor trustee if Howard can no longer perform trustee duties.

In the meantime, earlier in 2013, Richard recorded two deeds. The first, recorded in February and executed by Richard as trustee, purported to transfer the Kiwata Family Trust's interest in the Collins Street property to the Richard Kiwata Family Trust. However, at his deposition, Richard conceded he never actually created the Richard Kiwata Family Trust. The second deed, recorded in March and executed by Richard as supposed cotrustee, purported to transfer 37.5 percent of the Collins Street property from the Hironaka Revocable Trust to Richard, individually. However, as just described, the Hironaka Revocable Trust by then had no interest in the property (the interest having been transferred in 2008 to the Hironaka Family Trust and Yoshiko Hironaka Surviving Spouse's Trust). Further, according to Howard's trial testimony and the trust documents, Richard was never a trustee of any Hironaka trust."

In short, for the February 2013 deed, Richard transferred a property interest to a trust that never existed. For the March 2013 deed, Richard transferred a property interest from a trust that no longer existed and was never a trustee of said trust. Naturally both deeds were declared void by the trial court for the aforementioned reasons. This decision was upheld on appeal.

Probate Law v. Criminal Law

When a widow or widower passes away intestate (without a will) and they are the sole titleholder to real estate, the property passes first to their children, if any, in equal shares. Probate Code §§ 6400, 6402. Assuming their are children, they have a legal interest in the property as an heir. For example, if there are 5 surviving kids, each would have a 20% ownership interest in the property. They would still need to undergo formal probate to transfer ownership. Still, their ownership in the property vested the moment their parent passed away. Probate Code § 7000. However, a recent unpublished appellate opinion emphasized the difference between probate law and criminal law for burglary purposes.

People v. Perkins, Case # MCR045896, Madera County Superior Court.

The defendant had been convicted of burglary and other crimes, which resulted in an 11-year prison term. One issue on appeal was whether the "defendant had a possessory interest in his deceased mother's house, entitling him to enter when he did."

Since the defendant's mother had passed away intestate, the defendant, as a child, had a legal interest in the property. However, the appellate opinion stressed that the defendant did not have a possessory interest in his late mother's home. That is, the defendant did not live at the residence. According to the opinion, the mother did not allow the defendant in the house except to make an occasional phone call. She only permitted the defendant to keep two garbage bags filled with personal possessions on the back porch. Lastly, the defendant broke into the home through a window (a good sign that you don't live there as most people would opt for the standard door route). Therefore, even though he had a legal interest in the property, as an heir to his mother's estate, he did not have a possessory interest in the property. Since a burglary conviction stems from a lack of a possessory interest, which the defendant did not have, his conviction was upheld on appeal.

This case cited People v. Smith (2006) 142 Cal.App.4th 923 for the proposition that having legal ownership is not the same as having a possessory interest. In that case, a husband was convicted of burglarizing a home which he and his estranged wife owned jointly. (suffice to say a rather messy divorce).     

Severance of a Joint Tenancy

One of the main reasons why real property held in joint tenancy is not preferable is due to its inflexible nature. If one joint tenant dies, the surviving joint tenant(s) automatically receive the interest of the deceased joint tenant. This is true even if the joint tenant wrote a will and devised their interest in the property to somebody other than the surviving joint tenant. 

In order to avoid the automatic transfer upon a joint tenant's death, severance has to occur. Civil Code § 683.2 provides various methods in which a joint tenancy can be severed:

"(1) Execution and delivery of a deed that conveys legal title to the joint tenant’s interest to a third person, whether or not pursuant to an agreement that requires the third person to reconvey legal title to the joint tenant.

(2) Execution of a written instrument that evidences the intent to sever the joint tenancy, including a deed that names the joint tenant as transferee, or of a written declaration that, as to the interest of the joint tenant, the joint tenancy is severed."

A recent appellate decision addressed the issue of whether a contested lawsuit, i.e. the filing of a complaint and the answer to the complaint, constituted severance.

Walter v. Boosinger (2016) ___ Cal.App.4th _____

The parties involved a father and a former girlfriend. Originally  father sued to resolve ownership of the property. He claimed a 2/3 interest and her share was allegedly 1/3. However, a 2003 deed named the two as joint tenants. Thereby, if the deed was valid, the ownership interests would be the same, i.e. 50/50. Further, upon the death of one joint tenant, the surviving joint tenant would inherit the decedent's share of the property, 50%, automatically. See Civil Code § 683.2. 

Right after the lawsuit was started, father died intestate and son took over the case as his administrator. Son argued that former girlfriend's answer to the complaint severed the joint tenancy. However, the Court of Appeal disagreed. It held that "Scott cites no common law authority, and we are aware of none, that holds that a court may interpret a party's complaint and another party's superseded answer to constitute an instrument that severs a joint tenancy."

The crux was that it was unclear "even from Boosinger's superseded answer, that Boosinger agreed that she and Randy owned different percentage interests in the property (and therefore were not joint tenants)."

Author's Note: in order for a joint tenancy to be valid, the interests must be the same. For example, if a deed says Randy - 66.67% and Boosinger - 33.33%, there is no joint tenancy because the interests are not equal. The son's goal was to nullify the joint tenancy and thereby avoid having Boosinger automatically receive the other 50% of the property. 

Joint Tenancy v. Tenants in Common

When a person changes title to real property, the process is rather easy. A deed is signed, then notarized and recorded with the appropriate county recorder. The substance of changing title though can have an extremely lasting impact. This was evident in the following case:
 
Perna v. Perna, San Diego County Superior Court Case # 37-2013-00032837-PR-LA-CTL
 
According to the unpublished appellate opinion:
 
"Angie [Perna] is [Carlo] Perna's daughter. On March 22, 1999, Carlo presented to a hospital emergency room in respiratory distress and was later admitted to the intensive care unit. (All further date references are to 1999.) On March 29, Carlo changed title to real property located in Chula Vista from tenants in common with his sister, Maria S. Da Luz, to joint tenancy. Carlo signed the quitclaim deed and a notary public notarized the document. On March 30, Carlo underwent a tracheotomy. Carlo later requested that he not be resuscitated and that food and medication be withdrawn. Carlo died intestate on April 5. In 2013, Angie filed a petition for letters of administration challenging the transfer. Carlo's other daughter, Connie E. Castellanos, and his sisters, Concetta R. Perna and Da Luz, objected to the petition."

The reason why Ms. Perna challenged the transfer was due to the disposition of the property. 

If Mr. Perna had left title as is, the property in question would have  been distributed to his daughters, Mrs. Perna and Connie E. Castellanos. The reason being is that a tenant in common interest is passed via intestate succession if the decedent had no will. Here the opinion notes that Ms. Perna filed for Letters of Administration which means that Mr. Perna died without writing a will. Therefore, the heirs (see next of kin) of Mr. Perna's estate would inherit his tenant in common interest through intestate succession. Presumably his heirs were his two daughters, Mrs. Perna and Connie E. Castellanos.

The problem for Ms. Perna is that by changing title to joint tenancy from tenants in common, the owner of Mr. Perna's interest in the property upon his death was Maria S. Da Luz, the other joint tenant, not his estate. The reason being that a joint tenancy interest automatically passes to the surviving joint tenant. Grothe v Cortlandt Corp. (1992) 11 CA4th 1313, 1317. Here Mr. Perna and Ms. Da Luz were each joint tenants. Thus, they each owned 50% of the property. When Mr. Perna passed away, his 50% interest automatically passed to his sister, Ms. Da Luz.

In light of this, Ms. Perna challenged the validity of the transfer. The objective was to have the deed invalidated whereby title to the property would be held as tenants in common (in which she would partially inherit) as opposed to joint tenancy (in which she would inherit nothing). 

Ms. Perna lost her appeal at the appellate level for those of you keeping score at home.

Property Ownership - Evidence Code Section 662

When a person claims to own a piece of property, the first step is to ascertain title. That is, one needs to look at basically the most recently recorded deed for the property. The reason for this is that California law strongly presumes that the name on title is the actual owner. Evidence Code § 662 states "the owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof."

Ascertaining title is particularly important in estate administration. For example, if an only child can show that title to a piece of property was solely owned in the name of their parent, who was either a widow or widower, they would likely be entitled to solely inherit the property assuming the parent did not write a will. Conversely, if the only child shows that title was held in the name of the parent's trust, inheritance would not be a given for the child. An examination of the trust would be needed to figure out the beneficiaries, which may or may not include the child. Furthermore, if the parent held the property in joint tenancy, the surviving joint tenant would likely inherit the property from them regardless of whether they wrote a will or not.  In short, it is easy to see how title can dictate an outcome.

The reason for the qualification, i.e. "likely inheritance," is due to the fact that the name on title is not absolutely the true owner. A person whose name is on title could have acquired it through unlawful means. This may take the form of undue influence, coercion, duress, etc. If such means were used, there are legal remedies to reform title. However absent those circumstances, it is difficult to rebut the presumption that the name on title is not the true owner. The reason being is that one needs "clear and convincing evidence" to rebut the presumption that the name on title is not the true owner. While there is no magic formula for qualifying "clear and convincing evidence," it is a high enough standard such that a significant degree of certainty is needed to meet that threshold.  

It is worth mentioning the difference between legal title and beneficial title (also known as equitable title). The statute uses these terms when describing property ownership. The holder of legal title is the one with the authority to sell, lease, mortgage, etc. the property. The beneficial title holder is the one who can take legal action against the legal title holder for mistakes involving the property. A common example of where you see this arrangement is if a trust owns a piece of property and the trustee and beneficiary are different people. The trustee is said to have legal title and the beneficiary is said to have beneficial title. The trustee's name will be on the deed but the beneficiary's name will not. However, if the trustee commits a breach of trust, the beneficiary can sue the trustee for redress of injury.      

Trustee Succession

There are 3 roles in a trust, (1) settlor, (2) trustee and (3) beneficiary. For purposes of this post, the focus will be on the trustee.

The trustee is the legal owner of trust property. Trust assets will be titled in the trustee's name. For example, if a property is owned by a trust, the deed should list the trustee's name and the name of the trust on it. As legal owner, the trustee has the authority to seek legal redress on behalf of trust property for any injuries. The availability of legal redress does not automatically end when the original trustee passes away. 

When a successor trustee replaces the original trustee, the successor trustee is said to "stand in the shoes" of the original trustee. Eddy v. Fields (2004) 121 Cal.App.4th 1543, 1548. This permits the successor trustee to seek recovery for damages caused to trust property that occurred while the original trustee was still alive. These facts generally entail the case of George v. Gandolfo Excavating Inc., Alameda County Superior Court case # 12628707.

Original trustee owned real property in a rural area of Livermore, CA. In 2009, neighbors of original trustee allegedly cleared an improper fence line. In 2010, original trustee passed away and successor trustee assumed the office of trustee. In 2012, successor trustee sued neighbors in Alameda County Superior Court for (1) trespass; (2) destruction of real property; (3) destruction of trees (Civ. Code, § 3346; Code Civ. Proc., § 733); (4) discomfort and annoyance as a result of trespass; (5) negligence and negligence per se; (6) indemnification; and (7) conversion. Yep, go big or go home.

Defendants moved to have the case dismissed because successor trustee lacked "standing" to sue. They argued that the real party in interest was original trustee, the person who owned the property in 2009 when the alleged torts took place. Since successor trustee did not assume that role in 2010, the alleged damage had already happened. No harm no foul you could say. The trial court agreed with this argument and dismissed the case.

Successor trustee then appealed his case to the First District Court of Appeal of California. 

The Court of Appeal reversed the lower court's ruling, finding that a successor trustee "succeed[s] to all the rights, duties, and responsibilities of his predecessors."  Moeller v. Superior Court (1997) 16 Cal.4th 1124, 1131. So if original trustee had a right to seek legal redress for alleged injuries to the property, successor trustee does as well.

Ukkestad v. RBS Asset Finance, Inc. - Heggstad Petition

A Heggstad petition is a commonly filed probate petition in California. The petition is filed under Probate Code § 850. The purpose of the Heggstad petition is to obtain a court order confirming that a particular piece of property, typically real estate, is part of the trust estate. 

The common reason to file a Heggstad petition is because the settlor failed to formally transfer the property into the trust. For example, in the case of real estate, the settlor failed to execute a deed which transferred their interest in the property to their trust. Recently, a California Court of Appeal decision clarified the specificity needed in terms of real estate when filing a Heggstad petition.

Ukkestad v. RBS Asset Finance, Inc., __ Cal.App.4th __ (2015) 

Just prior to his death in 2012, Larry Gene Mabee executed a restatement of his trust. However, Mr. Mabee unfortunately did not execute trust transfer deeds for two parcels of real estate which he owned in his individual name. Thus when Mr. Mabee passed away, title to the two parcels was not in the trust's name. One of the successor co-trustees, Daniel Ukkestad, petitioned the probate court in San Diego County to have the two parcels be confirmed as trust assets. The trial court denied the petition and Mr. Ukkestad appealed.

According to the opinion, a key fact in the case was that "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." Conversely in the Estate of Heggstad (1993) 16 Cal.App.4th, the trust there did describe the property with some particularity. The trust's schedule of assets referred to the property in question as “Partnership interest in 100 Independence Drive, Menlo Park, California.” Id. at 946. Still, the Court of Appeal opined that a sufficient description had been made by Mr. Mabee given that the trust stated: 

"The Grantor [i.e., Mabee], 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, including all Tangible Personal Property, stocks, bonds, cash, mutual funds and promissory notes, all amounts on deposit from time to time at any bank, savings and loan association or investment institution, real property, leases on real property, interests in business entities and all other property owned by the Grantor, wherever situated. . . . The Grantor intends this assignment to be effective as of the date of this instrument even though other documents may be necessary to perfect title to such property in the name of the Trustees."

Therefore, the Court of Appeal reversed the trial court's ruling as it stated "that because the Trust Instrument states that all of Mabee's "right, title and interest" to "all of his real . . . property" is included in the Trust's assets, and it is possible by resorting to extrinsic evidence to determine that Mabee held title to the Two Parcels, the statute of frauds creates no bar to Ukkestad's petition for an order confirming that the Two Parcels are part of the Trust's assets." 

The Other Prop 8

Many people are familiar with Prop 8, the gay marriage ban passed in 2008 by California voters which was ultimately ruled unconstitutional. However, unknown to many, there is another Prop 8 which was also passed by voters, albeit in November 1978. Unlike the latter Prop 8, the prior Prop 8 lacks the same amount of controversy. I can assure you of this. The prior Prop 8 was passed because California voters passed the landmark ballot initiative Prop 13 in June 1978.

In short, Prop 8 allows for the county assessor to assess the property below the Prop 13 value if the home's value is below the factored base year value, i.e. the Prop 13 value. The following example illustrates the interplay between Prop 8 and Prop 13.

Theo Chambers purchases a home in Campbell, CA in July 2008 for $600,000. The assessed value under Prop 13 can be raised at most 2% per year. Thus for 2009, the maximum assessed value for 2009 that Santa Clara County can impose under Prop 13 is $612,000. 

Theo unfortunately purchased his home just prior to the great recession. Real estate prices naturally suffer a precipitous drop. In Theo's case, his home depreciates $150,000 in value in the ensuing months. When January 1, 20009 rolls around, the market value of his home is $450,000. Due to Prop 8, Theo's assessed value will also be $450,000, rather than $612,000. So when Theo pays his property tax bill, it will be derived from the $450,000 assessment.

Years later, the real estate market recovers and home prices increase to levels greater than or equal to the prerecession levels. Consequently, Theo's home is now worth $750,000 in 2015.

Santa Clara County can now assess Theo's property under Prop 13 because of the appreciation. However, it cannot assess Theo's property at $750,000 because it has not reached that level under Prop 13's annual 2% increase. A 2% increase from 2009 to 2015 yields an assessment of roughly $690,000. Thus, Santa Clara County will use the $690,000 assessment for Theo's property taxes.    

Another salient point is that in times of significant real estate appreciation, the assessor can increase the assessment greater than 2% in consecutive years under Prop 8. For example, assume a home is purchased for $100,000 in 2013. Home values plummet because of a derailed train carrying crude oil that pollutes the entire town. This results in the home losing $50,000 of its value in 2014. Prop 8 kicks in and the assessment is $50,000. Yet in 2015, a wealthy philanthropist donates tens of millions of dollar to the city to revitalize it and home prices rebound immensely, such that the value of the home is now $125,000. The county assessor can now roughly increase the assessment $54,000 because the Prop 13 value is less than the market value. That is, the 2% increase of $100,000 from 2013 to 2015 results in roughly a $104,000 assessment. Therefore, the property taxes will be based off of the assessment of $104,000, not $125,000.

Heggstad Petition

A Heggstad petition is a tool used to judicially transfer real estate into a revocable trust when the settlor failed to do so during their lifetime. That is, the settlor created a trust but never formally transferred their real estate into the trust via a deed.  

A Heggstad petition is a common procedure for a number of reasons. 

First, many people engage in do-it-yourself estate planning and fail to appreciate the finer details of funding their trust. Simply because you declare real estate to be a trust asset does not formally make it a trust asset. Instead one must transfer title from themselves to themselves as trustee of their trust to do so. 

Second, many lenders will not do a re-finance if title is held in the name of the trust. The lender will insist that the borrowers transfer title out of their trust and into their own names before the lender will extend credit. The problem is that borrowers occasionally forget to transfer their home back into the trust once the re-finance is complete. The borrowers then pass away with title being in their names instead of the trust's name.    

The Heggstad petition needs to be filed in the county where the principal place of administration of the trust is located. Prob C § 17005. For instance, if the trustee lists Campbell, CA as the principal place of administration, Santa Clara County Superior Court is the appropriate court. A common practice is for attorneys to put down their office address as the principal place of administration. This allows the attorney to file a Heggstad petition in their "home" county. By filing in the attorney's home county, it is more convenient for the attorney because of reduced travel time and the probate judge is arguably more familiar with the attorney if they appear in their courtroom regularly. I always utilize this practice given the benefits of doing so and wonder why all attorneys do not.
 
In order to file a Heggstad petition, the petitioner must cite the relevant probate code section that authorizes the probate court to have jurisdiction over the matter. The relevant probate code section is Prob C § 850(a)(3)(B). It reads in relevant part:

(a) The following persons may file a petition requesting that the court make an order under this part:
(3) The trustee or any interested person in any of the following cases:
(B) Where the trustee has a claim to real or personal property, title to or possession of which is held by another. 

Once the petition is filed and the order granted, the attorney has a certified copy of the order recorded in the county where the real estate sits. The recorded order serves as proof of the transfer of title to the settlor's trust.

Locating Trust Assets

One of the primary functions that a trustee is entrusted with undertaking is inventorying and appraising the decedent's trust estate, i.e. the assets in the trust. Naturally this can be a difficult situation because the decedent will typically not keep meticulous records of each and every asset they own and its value. Instead a collection of documents will probably comprise the decedent's trust estate. The trustee then must piece together these documents to complete the decedent's financial puzzle. This is not the easiest task to accomplish.

Clients typically ask if there is a short-cut or easier method to search for a decedent's financial assets rather than comb through voluminous amounts of paperwork. Though not a fail-safe answer, an excellent source of financial information is the decedent's income tax return. Either federal or CA is fine because both ask relatively the same questions. Since a person is basically obligated to maintain their tax records for at least a couple of years, it is reasonable to believe that a recent tax return can be uncovered. Granted some people do not do this, but I would like to believe that a person responsible enough to write a trust would also be responsible enough to retain tax returns for a certain period of time.

An income tax return typically yields relevant financial information because people naturally like to invest in income-producing assets. Call me crazy. Rarely, if ever, have I seen, read or heard about a decedent who kept all of their money underneath their mattress. Suffice to say this is not the most prudent way to maintain your assets. Instead I have heard of countless decedents who have invested their money in stocks, mutual funds, business interests, rental properties, certificate of deposits, etc. 

For instance, if the decedent has a bank account, they will probably receive a 1099-Int to reflect the interest income they  received. The threshold amount for issuing a 1099-Int is quite low, $10. Also, many banks will issue a 1099-Int regardless of the interest income amount. Hence, it is probable that if the decedent had a bank account, they will receive a 1099-Int form from that financial institution the following year. Furthermore, if the decedent owned stock, they might receive form 1099-Div. Additionally, if the decedent had an interest in a partnership, they would receive a K-1 statement. Finally, if the decedent had a rental property, such would be reflected on Schedule E on form 1040.

Fortunately though, real property is usually the most valuable asset in a decedent's trust estate. Moreover, locating real property in California is quite easy, unlike other financial assets. There is no national database for bank accounts for example. Many county recorders offer as-is online searches that can be used to search for a decedent's interest in real property in that particular county. For instance, Santa Clara County has an excellent grantor-grantee website that can be used to discover what property a "Constance Malerick" or a "M.E. Miri" own in Santa Clara County now or in the past.

Specific Performance

Many past clients have inherited real estate, e.g. a home, from their parents whether through probate or a trust. Frankly, it is almost logical that a child would inherit real property from a trust given that real property ownership is almost always a condition precedent for writing a trust. The reason being is that assets held in trust, such as real property, avoid probate. A California probate is notoriously known for being long and expensive. Furthermore, there is generally no better transfer method of  real property than through a trust.

These clients have often insisted that the property be sold promptly given that they do not have the same emotional attachment to the property as did their parents and the favorable tax treatment afforded inherited real property (see step-up in basis). This inclination to sell is understandable but there is an important variable to ponder when making a decision to sell real property, the remedy known as specific performance.

Real property, in the eyes of the law, is considered a unique item. No two parcels of real property are alike. Each house on any street has its own unique blend of characteristics. When a seller and buyer have entered into a contract to convey real estate, the consideration at issue is unique. The law presumes that no amount of money damages can compensate the buyer when the seller has breached a contract to sell a unique asset such as real property. Thus the law affords in such cases the buyer an equitable remedy known as "specific performance." This remedy requires that the seller transfer the property to the buyer provided certain certain conditions are met. For reference, the remedy usually awarded in a breach of contract case is money damages, i.e. the amount necessary for the non-breaching party to reap the benefit of the bargain (yes classic legalese.     

The relevance of specific performance is that once a seller decides to sell the property, the seller may be forced to transfer the property even if they change their mind during the course of the transaction. In practice this means that if a seller and buyer have entered into escrow, the ball is in the buyer's court. The seller can generally only opt of the contract for a breach by the buyer, e.g. failure to waive the physical inspection contingency within the agreed upon time. Conversely, the buyer can opt of the contract without liability during the contingency period. For instance, the physical inspection report might reflect significant termite damage or a rotting roof.   

While most clients do not change their minds about selling mom's home mid-stream, i.e. in escrow, it is prudent to be aware of the consequences for doing so.

What is a life estate?

A life estate is a conveyance which grants the life estate holder, the life tenant, the ability to live on the property for the duration of their life. This type of conveyance offers control to the donor because they can restrict the life tenant's use of the property. For example, the donor can require that (1) the life tenant remain a continuous occupant of the property for their life and/or (2) require the life tenant to pay all taxes and maintenance associated with ownership.  

The following illustration demonstrates how a typical life estate arrangement works.

In the 1990s, John Doe, a widower, owned 650 Rosewood Court Los Altos, CA 94024. John decided that he wanted his only son, Jack Doe, to own the property albeit in a life estate form because Jack was largely irresponsible. Jack had a penchant for unsuccessfully gambling on English Premier League soccer matches. He insisted that he only picked "winners" but alas lady luck was not on his side. Naturally John worried that Jack might sell 650 Rosewood Court to fund his gambling habit. Since the property was quite lucrative, a large infusion of cash from the sale could cause Jack to gamble an outlandish amount of money at casino sportsbook in Las Vegas, NV. 

John executed a deed in 1992 which granted a life estate to Jack and the remainder to his cousin Carl Walcott. The life estate required that Jack maintain the property's upkeep and continuously occupy the home as his primary residence. If Jack failed to perform either requirement, title would be transferred to Carl immediately. Since the life estate conveyance from John to Jack involved a parent to child transfer, such was not subject to real property tax re-assessment. This was especially important to Jack because the property taxes were quite modest given that John purchased the house with his late wife Jane in 1944 for a small sum. Hence Jack was able to enjoy a low property tax base and the corresponding property taxes were quite manageable. 

Sadly Jack succumbed to his insatiable gambling habit and decided to move to Las Vegas permanently. Spurred by fantasies of instant gratification and enormous wealth, Jack's temptations over-whelmed him. This caused the termination of his life estate because John required that Jack continuously occupy 650 Rosewood Court.  Therefore when Jack signed a lease to rent an apartment in Las Vegas, his life estate for 650 Rosewood Court was terminated. A termination of life estate was then filed with the Santa Clara County Recorder's Office . This transfer did result in a real property tax re-assessment because there were no exclusions that apply to the transfer of real estate between John and Carl. 

Refinancing a Home - Revocable Trust

When a home is titled in the name of a revocable trust (or living trust) and the trustee wishes to refinance the home, a bank will often require the trustee to transfer the home out of the trust and into the trustee's individual name. For instance, if title is held by "John Doe, Trustee of the Doe 2014 Rev. Trust dated 1/15/14," a bank will typically ask that Mr. Doe transfer title to "John Doe."

One reason why the bank is leery of refinancing when title is held by the trustee of a revocable trust is because it is unclear who is the equitable owner of the property. When a married couple or single person applies for a refinance, the bank will first check to see how title is held. Naturally, a bank will not extend a home loan if the borrower does not own the home. Ah, those crazy banks. Upon inspection of the deed, ownership of the home should be apparent. I say apparent because in the case of a home owned by a revocable trust, it is unclear who is the beneficial owner of title. Legal title is readily clear because the legal title holder will be the name of the trustee. In particular, if correctly titled, the trustee's name, the name of the trust and the date the trust was formed should be listed on the deed. However, no deed will state the name of the equitable title owners, i.e. the beneficiaries of the trust.

Ascertaining the beneficial title owner(s) is particularly important because they have equitable powers that can be enforced against the trustee. For example, the beneficiaries can have the trustee removed, surcharged or suspended for breach of fiduciary duty. Therein lies the problem with refinancing when title is held by the trustee, these unknown beneficiaries can cause legal headaches for the trustee and the bank is unaware of who they may be.

In light of this, some banks insist that title be transferred from the trustee(s) back to the individual(s) in order for the refinancing process to be completed. Still, some banks are okay with the home remaining titled in the name of trustee provided the trustee completes a detailed questionnaire which identifies the appropriate parties, i.e. the trustee and beneficiaries, and the trustee's powers.

For people who must transfer the home out of the trust, it is especially crucial that they transfer the home back into the trust once refinancing has completed. Otherwise, probate may be needed if an owner passes away and title is held in their individual name instead of the trustee's name. This is a rather ironic consequence because almost invariably a person writes a revocable trust to avoid probate.   

Parent-Child Exclusion and Rental Property

The parent-child exclusion can be enormously beneficial to children who seek to maintain ownership of inherited real estate. In short, the parent-child exclusion essentially allows a parent to transfer to their child the property tax basis of their primary home plus up $1M in assessed value of other real property. This can be a boon to children because property purchased many decades ago has a low property tax basis which makes keeping the home desirable. 

For example, one client I represented a few years ago inherited a home from his late mother who purchased her home in the 1960s. Since the transfer qualified for the parent-child exclusion, the son was able to "inherit" his mother's property tax basis, which was minimal. Hence, his property tax payments were around $600 whereas without the benefit of the parent-child exclusion his property tax payments would be around $5,000. While this does not seem like an eye-popping discrepancy, this payment is annually made. Therefore, the property tax savings are magnified given that the son can reap the benefits for years to come.      

One dilemma though that parents face when deciding how to structure their estate is with rental property. While rental property fits within the "other real property" parameters of the parent-child exclusion, the issue of personal liability remains. That is, if a person owns rental property in their individual name, they are personally liable for the debts of the rental property. For instance, if the tenant slips and falls, the tenant may sue for redress of injury in hopes of obtaining a judgment against the landlord/owner. If successful, this judgment can be then be attached to the rental property, and more importantly, the individual himself. Thus, the personal assets of the individual, e.g. bank accounts, stocks, bonds, mutual funds, etc., are subject to attachment. 

One way to shield oneself from personal liability in this situation is to create a business entity to own the real estate. Under this scenario, the landlord/owner would ordinarily not be personally liable for any judgments that arise from ownership of the rental property. It would be reasonable to say that at least thousands of Californians have established LLCs for this purpose, i.e. own rental property to avoid personal liability. 

The problem is that the California code does not permit real estate owned through a business entity to be eligible for the parent-child exclusion. Penner v. County of Santa Barbara (1995) 37 CA4th 1672. In Penner, a parent's unsuccessful  attempt to transfer real estate to her children via a limited partnership resulted in the property taxes being increased from $337,276 to $2,300,000 because it did not qualify for the parent-child exclusion. The court noted that "property must be transferred from one natural person to another" to qualify for the parent-child exclusion. Since the partnership, a business entity, was not a natural person, it failed to qualify for the parent-child exclusion.

A parent owning rental property is thus faced with two competing issues, (1) the parent-child exclusion and (2) liability protection. In this case, a parent cannot have their cake and eat it too seemingly. Either the parent can keep the rental property in their individual name and risk personal liability, or they can transfer the rental property into a business entity, typically an LLC, but lose the potential benefit of the parent-child exclusion. One solution to this dilemma is to purchase umbrella insurance for the rental property and keep the rental property in the individual's name. This method maintains eligibility for the parent-child exclusion and minimizes the effects of personal liability because of the availability of insurance proceeds. The problem is the potential cost of an umbrella policy and the policy limits for an umbrella policy. In law, much like life, there is no perfect solution.

Prop 13 - Split-roll real property taxes

 
Real property taxes in California are famously governed by Proposition 13. This landmark proposition was passed by California voters on June 1976 by a margin of 62.6-34 (3.4% of ballots were invalid or blank). Prop 13 limits the taxable rate to 1% of the assessed value and limits the increase in assessment to 2% per year.  Numerous clients have told me over the years that their home is "under Prop 13" when in reality every home is governed by Prop 13. My belief is that they owned their home back in 1978 when Prop 13 caused assessment values to be rolled back to 1975 values. To be clear, if you own any real property in California, the property taxes for such are subject to Prop 13. 

The following illustration depicts how Prop 13 works. Assume a person purchases a home for $100,000, the property taxes could not exceed $1,000 and the assessable value of the home could not exceed $102,000 for the next year. It should be noted that many other levies are listed on a property tax bill, e.g. school bonds, library bonds, etc.    

Similarly, property taxes for commercial property are enforced in the same manner. That is, commercial property is levied and assessed at the same rate as residential property. In numerous areas of the law residential real property and commercial real property is treated differently. For example, leases involving residential real property carry with them an implied warranty of habitability. There is no such warranty in terms of leasing commercial property. A more obvious example is zoning laws. The activities that may be conducted in or on residential real property is mainly limited to human occupancy or cottage industry. Whereas with commercial real property such is naturally zoned for commercial enterprise as opposed to personal living spaces. 

However, in terms of real property taxes, taxation is equally applied to residential and commercial real property. Thus, the owner of a strip mall with an assessed value of $2M will be taxed at the same rate and be subject to the same assessment increases as the owner of a $2M home.

In light of this, some California politicians have proposed to create a two-tier system, with residential real property taxed under one regime and commercial real property taxed under a different regime. "Split-roll" is a term used to describe this proposed system. For example, Assembly Bill 2492 (Ammiano) sought to modify the definition of when the sale of a commercial property results in a "change in ownership." Of note, when a "change in ownership" occurs, the subject real property is re-assessed. Since real property almost invariably appreciates over time, a change in ownership will result in a higher assessed value and corresponding higher real property tax assessment.

Various bills that would usher a split-roll real property tax system have been proposed, but none have passed so far. One principal reason why is because to tinker with Prop 13 requires a 2/3 majority in the state Senate and state Assembly, as it is a constitutional amendment.

Since revenue from increasing property taxes is in the tens of billions of dollars, there are numerous interested parties in favor of preservation or modification. Thereby the idea of a split-roll system will carry on for the foreseeable future.