This Section and its working committees (Guardianship / Conservatorship Project and Elder Law) deal with all issues relating to estate planning and the probate of decedents' estates, the avoidance of probate, and the protection of incompetents and their assets through guardianships and conservatorships.

Beverly Hills Bar Association Legislative Updates California Court of Appeal

December, 2004 Case Update Heaps v. Heaps (G033133) - Very Important Case (California) What happens to property owned during existence of trust but is not transferred into the name of the trust? Husband and Wife 1 buy a house. Title to the property was taken as Joint Tenants. Later they enter into a living trust that turns into two irrevocable trusts at the death of the first spouse. The trust contained a standard provision that said “The Trustee may hold property held by Trust in trustees own name without a designation showing it to be in the Trust.” The real estate was never funded into the trust and remained titled as Joint Tenants. Wife 1 dies and the property is still listed as joint tenants of Husband and Wife 1. Property is then sold to a 3rd party and Husband retains a deed of trust on the property. Husband remarries to Wife 2. Husband and Wife 2 then fund the trust with the Trust Deed from the sale of the House. Husband dies. Wife takes sole possession of the Deed of Trust. Kids from Wife 1 Sues Wife 2 for the value of the deed of trust. Wife 2 argues that because the house was in the name of joint tenants, and not as trustees, it never became trust corpus. Further, because Husband and Wife were both trustees and beneficiaries, they had the option of not putting the house into the Trust and keeping it as owned by Joint Tenants. Hence it was never funded into the trust. Kids of Wife 1 argue that the provision of the Trust allowing property to be kept in the name of the joint tenants making it still trust property prevails. The court and appellate court sided with the Kids saying. The court was very critical of Lawyers drafting Living Trusts, saying that we crank them out and do not read standard provisions. Thus, we are stuck with the provisions of the trust. Therefore, unless there was an affirmative action to take the property out of the trust prior to the time it became irrevocable, it remains trust property. Thus, Wife 2 owns kids of Wife 1 the deed of trust. The lesson is that if there is a provision regarding the naming of trust property, be careful. Smith v. United States 5th Circuit 01-20194 The Estate of Smith seeks a refund for a return of federal income taxes already paid. Their complaint is that they over-valued retirement accounts on the 706. The two retirement plans held publicly-traded stock. The estate sought to receive a 30% reduction in value based upon the fact that the beneficiaries would receive 30% less based upon their income tax rates. Specifically, the referred to it as a discount for lack of marketability and a need for a reasonable profit in order to induce a willing buyer to enter into a transaction. The estate likened this situation to cases which have allowed a discount for a built-in gain on the valuation of closely-held C corporations. The court distinguished the subject case from the reduction for built-in capital gains. The difference lies in §691C which provides the beneficiaries a deduction for the estate taxes paid whereas in a C corporation, the purchaser of the corporation takes on the same tax disadvantage that the seller was transferring.