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A recent unpublished appellate opinion detailed the interesting story of one trustee.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

Online Legal Documentation Services

Using an online site is an automated process, just like bottling beer

People who are cost-conscious or short on time, often resort to self-directed websites to draft estate planning documents. The most popular website where people can create legal documents is probably Legalzoom.  

My main critique of using websites to create documents is that the client is given no legal advice when completing the process. These websites have explicit disclaimers stating that the website is offering no legal advice whatsoever. Hence, the client is left with figuring out the legalities themselves. 

In terms of estate planning, figuring out the legalities yourself is not the ideal circumstance.

One of the principal reasons why a person with a home writes a trust is to avoid probate. Probate is quite expensive and lengthy so most people try to avert it. The key step is to transfer the settlor's home to the trust. Herein lies the problem of using an online document-drafting site, it cannot personally advise you to transfer the home into the trust nor can it actually effect transferring the home into the trust, i.e. a trust transfer deed. Both of these would constitute rendering legal advice, which it is prohibited from doing. Ultimately, the client has a trust but not funded with the home. When the client passes away, the home will need to be transferred through probate or via a Heggstad petition if certain facts are present. The upshot is that the client's goal of having a fluid transfer of assets from themselves to their beneficiaries has not been achieved. In terms of real-world application, the following example has occurred to a couple of client I have had over the years.

My non-attorney friends occasionally ask me if I am threatened by Legalzoom and other online document drafting sites, that is it is a competitor of mine. I tell them that these sites are actually beneficial to attorneys, albeit in a perverse way. Usually clients that use these sites botch the estate planning process because they are not given competent legal advice. When they come to me, I have to rectify the shortcomings so that the person's original intentions are met. Whereas, if they had just come to me in the first place, they start anew so there is less work involved that dictates a lower fee.

On a side note, Legalzoom does recognize my work. An article I wrote about modifying irrevocable trusts is cited in a Legalzoom article on the topic. While I appreciate the recognition, I am not about to give a ringing endorsement of Legalzoom because it mentioned an article I wrote.

Locating a Trust

A common question I see asked by people is,  "where can I find a copy of a living trust?" For example, a person heard that a relative died recently and remembered that he or she, the decedent in legal terminology, might have written a trust a few years ago but is not totally sure.

Many people erroneously believe that a government agency or superior court stores copies of living trusts. The simple answer is no. There is no government agency or superior court that stores copies of living trusts. Living trusts, unlike wills, are not required to be lodged with a government agency or superior court. See Prob C § 8200.

A logical follow-up question is, "where then can I find for a copy of a living trust?"

The easiest method is to rummage through the decedent's belongings. Most people keep a copy of the trust at home in a secure place, unless they have a safe deposit box. Although for a safe deposit box, access would likely be an issue because of bank privacy considerations.

A creative way for determining the existence of a living trust is to check the real property records pertaining to the decedent. If the decedent did in fact write a trust and owned real property, he or she should have transferred the property into the trust via a deed. If that is the case, the deed should show the name of the trust, the trustee and the date it was signed. Furthermore, it is common for attorneys to write the trust transfer deed for clients, also known as a grant or quit-claim deed, so the attorney's name might be listed on the deed under "Recording Requested By" in the upper left-hand corner. Many attorneys are also notaries, so it would be prudent to check the notary's name on the deed as well.  The State Bar of California's website has an online search where you can look up the name of every practicing attorney in California. Yes, every single one of them and yes I am on there. Consequently, some attorneys keep copies of trusts they have written in the past.

However, if the decedent did not own real property, it is very challenging to know if a person wrote a living trust because public records will not reveal anything. In that case, you are looking for the proverbial needle in a haystack.