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Trusts and Estates

Ca. Trs. & Estates Quarterly 2018, Volume 24, Issue 1

TIPS OF THE TRADE: ALTERNATIVE TO HEGGSTAD FOR CURING THE "INCOMPLETE REFINANCE"

By John M. Andersen, Esq.*

Despite the increasing willingness of banks to lend directly to the trustees of a revocable trust, practitioners commonly find real property, originally held in trust but now held by a deceased settlor, because a bank required the settlor to remove the real property from the trust during a refinance. This article refers to this occurrence as an "incomplete refinance." If the real property was sufficiently described on Schedule A or elsewhere in the trust document, the successor trustee can avoid opening a probate by filing a petition for an order declaring the real property to be an asset of the trust.1 The incomplete refinance, however, is not really a Heggstad case.2Heggstad concerned the creation of a trust. Here, the question is whether the settlor effectively withdrew property from, or partially revoked, a trust that was validly created.

THE SZANTO CASE

The First District Court of Appeal (the same Court that issued Heggstad) first marked this distinction in the unpublished opinion in Estate of Szanto?3In Szanto, husband and wife created a revocable trust and deeded their Hillsborough residence to it. Later, at the request of the lender and in connection with a refinancing, they deeded the residence to themselves as joint tenants. The deed was executed at the request of the lender, and husband and wife intended to deed the residence back in the trust after the refinancing was complete. For whatever reason, the residence was never transferred back to the trust before wife’s death. Under these circumstances, husband filed a Heggstad petition requesting an order that the property be declared an asset of the trust. The trial court granted the request, but the Court of Appeal, in a non-published opinion, reversed. As the court noted, Heggstad involved the creation of a trust, but here:

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