What Happens If Assets Are Left Outside a Trust in California?

What Happens If Assets Are Left Outside a Trust in California?

Introduction

One of the most common issues trustees encounter during a California trust administration is discovering that certain assets were left outside a trust. Assets left outside a trust may include homes, bank accounts, vehicles, investment accounts, or other property that the settlor intended to place into the trust during their lifetime.

Many trustees feel overwhelmed when they discover assets left outside a trust after the death of a loved one. Fortunately, this is an extremely common issue in California trust administrations, and probate may still be avoidable depending on the type of asset and the estate planning documents involved.

In many situations, a trustee may still be able to use:

• a Small Estate Affidavit,
• California DMV procedures such as a REG 5 vehicle transfer,
• or a Heggstad petition

to transfer assets into the trust without a formal probate proceeding.

This article provides a general overview of how California trustees should approach assets left outside a trust and the legal options that may still be available.

Short Answer

• Assets left outside a trust do not automatically require probate.
• Trustees should first review whether the asset already passes automatically by law or by beneficiary designation.
• Depending on the value and type of asset, a Small Estate Affidavit, Heggstad petition, or California DMV transfer procedure may still be available.
• Trustees should carefully review the trust documents, Schedule A, and pour-over will before taking action.

Why Assets Are Often Left Outside the Trust

Many people believe that once they create a Revocable Living Trust, all of their assets automatically become part of the trust. However, this is not the case. In order for a trust to fully function as intended, assets usually must be properly transferred, or “funded,” into the trust during the settlor’s lifetime.

Assets are often left outside a trust simply because the settlor did not realize, or later forgot, that assets usually must be formally transferred into the trust in order to avoid probate.

Want to learn more about Probate? Click Here to check out our Probate Page.

In other situations, the settlor may create and sign the trust near the end of their life but pass away or lose capacity before completing the trust funding process.

Sometimes, the settlor may not even be aware that certain assets exist. For example, California maintains an unclaimed property database where individuals may discover forgotten bank accounts, insurance proceeds, or other property that was never transferred into the trust.

In other cases, the settlor may only become entitled to compensation after their death.

Fortunately, depending on the type and value of the omitted asset, there may still be legal options available to transfer the asset into the trust or avoid a full probate proceeding.

What Should a Trustee Do if Assets Were Left Outside a Trust?

Step 1: Create a Complete List of All Assets

First, the trustee should create a complete list of all assets belonging to the deceased settlor. This includes:

• assets that were properly funded into the trust, and
• assets left outside a trust.

If you would like to learn more about a trustee’s general duties after death, please read our blog post, “What Does a Trustee Have to Do After Death in California?”

Once the trustee has a full list of all assets, the trustee can move to the next step.

Step 2: Review the Assets Left Outside the Trust

After identifying which assets were left outside a trust, the trustee should review each asset individually to determine how the asset may pass after death.

Was the Asset Distributed by a Valid Personal Property Memorandum?

First, the trustee should determine whether a valid Personal Property Memorandum ("PPM") distributed any of the personal property items.

A valid Personal Property Memorandum ("PPM") may control the distribution of certain tangible personal property. To be valid, the PPM must comply with the California Probate Code.

If a valid PPM distributed the asset, the trustee may remove it from the list of assets left outside the trust.

Want to learn more about Personal Property Memorandums? Read our blog post "Personal Property Memorandum: Why You Need One".

Does the Asset Have a Joint Owner?

Next, the trustee should determine whether any asset outside the trust has a joint owner or is held in joint tenancy.

For example:

• bank accounts may have a joint owner, and
• real estate may be owned in joint tenancy.

In many situations, jointly owned assets pass automatically to the surviving joint owner after death.

Similarly, property held in joint tenancy will often pass directly to the surviving joint tenant by operation of law.

As a result, these assets will often not need to pass through the trust administration process or probate.

However, the trustee should still carefully review:

• how title was held,
• whether survivorship rights actually apply,
• and whether any additional legal issues exist.

Joint ownership issues can become complicated. Therefore, trustees should strongly consider consulting a California trust administration attorney before removing any jointly owned asset from the list of assets left outside the trust.

Does the Asset Have a Valid Designated Beneficiary?

Next, the trustee should determine whether any of the assets outside the trust contain valid beneficiary designations.

For example:

• retirement accounts,
• life insurance policies,
• payable-on-death (“POD”) accounts,
• and transfer-on-death (“TOD”) accounts

often pass directly to the designated beneficiary listed on the account.

In many situations, these assets will pass outside of the trust administration process and outside of probate as well.

However, the trustee should still carefully review the beneficiary designations to confirm:

• that the designated beneficiary is alive,
• that the designation was properly completed,
• and that no additional legal issues exist.

Step 3: Review the Settlor’s Estate Planning Documents

Next, the trustee should review the settlor's estate planning documents. These documents may reveal additional options for transferring assets left outside the trust.

Review the Settlor’s Will

First, the trustee should review whether the settlor left a validly executed will.

If a valid will exists, the trustee should determine who is named as the beneficiary of any assets passing through the will.

In many Revocable Living Trust estate plans, the settlor executes what is commonly referred to as a “pour-over will.” A pour-over will generally directs that any assets left outside a trust at death should ultimately be transferred into the trust.

From the trustee’s perspective, the ideal situation is that the trust is named as the sole beneficiary of any property passing through the will.

Review the Schedule of Assets

The trustee should also review whether the settlor left a Schedule of Assets, sometimes referred to as a “Schedule A.”

In many California Revocable Living Trusts, the Schedule A lists assets that the settlor intended to transfer into the trust during their lifetime.

This document can play an important role when assets remain outside the trust. In some situations, a Schedule A helps establish that the settlor intended a particular asset to belong to the trust.

Step 4: Determine Whether Probate Can Be Avoided

After identifying the assets left outside the trust, the trustee should determine the value of each asset. The trustee should then calculate the total value of the remaining assets.

If the Remaining Assets Are Under the California Probate Threshold

In situations where the total value of the remaining assets is under $208,850, probate may not be required. If the settlor's will names the trust as the beneficiary of those assets, the trustee may be able to transfer them into the trust without a formal probate proceeding.

For example:

• bank accounts and other qualifying assets may potentially be transferred using a California Small Estate Affidavit, and
• vehicles may potentially qualify for California DMV transfer procedures such as a REG 5 form.

If the Remaining Assets Exceed the California Probate Threshold

If the aggregate value of the remaining assets exceeds $208,850, the estate may potentially require a probate proceeding. However, there may still be options available to avoid probate.

At this stage, the trustee should review the settlor's Schedule A and other trust documents. The trustee should determine whether those documents identify any assets left outside the trust as trust assets.

This step is extremely important. Assets listed on a Schedule A may qualify for transfer into the trust through a Heggstad petition.

If you would like to learn more about Heggstad petitions, please read our article on Heggstad petitions in California.

In short, a Heggstad petition asks the court to confirm that a specific asset belongs to the trust. The trustee typically argues that the settlor intended to transfer the asset into the trust during their lifetime.

Hypothetical Example

Assume John passes away in California and leaves behind the following assets.

Assets Properly Funded Into the Trust

• Home in San Diego
• Investment Account
• Checking Account
• Savings Account

Assets Left Outside a Trust

• Property in San Francisco
• Property in Los Angeles
• IRA Account
• Five pieces of art
• Three vehicles owned by the settlor
• CD Account

Step 1: The Trustee Creates a Full List of Assets

The successor trustee first creates a complete list of all assets belonging to the deceased settlor, including both:

• assets properly funded into the trust, and
• assets left outside a trust.

Step 2: The Trustee Reviews the Assets Left Outside the Trust

The trustee then reviews each asset individually to determine how the asset may pass after death.

After reviewing the assets, the trustee discovers the following:

• The five pieces of art were properly listed on a validly executed Personal Property Memorandum that left the artwork to the settlor’s neighbor.
• The IRA account listed the settlor’s son as the 100% designated beneficiary.
• The San Francisco property was owned in joint tenancy with the settlor’s sister, meaning the settlor’s interest automatically passed to the surviving joint tenant after death.

At this stage, those assets are removed from the list of problematic assets left outside a trust.

Step 3: The Trustee Reviews the Estate Planning Documents

Next, the successor trustee reviews the settlor’s estate planning documents and discovers:

• the settlor executed a valid pour-over will naming the Revocable Living Trust as the sole beneficiary of assets passing through the will, and
• the settlor also maintained a valid Schedule of Assets attached to the trust.

Step 4: The Trustee Determines Whether Probate Can Be Avoided

The trustee then calculates the value of the remaining assets outside the trust and discovers the following:

• The Los Angeles property is worth approximately $2,000,000.
• The three vehicles are worth approximately:
  • $20,000,
  • $50,000,
  • and $40,000.
• The CD account contains approximately $80,000.

At this stage, the remaining assets total approximately $2,190,000, which is obviously far above the California probate threshold of $208,850.

Initially, this may suggest that a probate proceeding will be required.

However, after reviewing the Schedule of Assets, the trustee discovers that the Los Angeles property appears on the trust's Schedule A. This may help establish that the settlor intended the property to belong to the trust.

The trustee then files a Heggstad petition in the Los Angeles County Probate Court. Through the petition, the trustee asks the court to confirm that the Los Angeles property belongs to the trust.

After the Heggstad petition is approved, the Los Angeles property is removed from the probate calculation.

At that point, the remaining assets outside the trust consist only of:

• the three vehicles, and
• the CD account.

The aggregate remaining value is now approximately $190,000, which falls below the California probate threshold.

As a result:

• the trustee may potentially use a California Small Estate Affidavit to transfer the CD account into the trust, and
• the trustee may potentially use California DMV procedures, including REG 5 forms, to transfer the vehicles.

By using these procedures, the trustee may potentially avoid a full California probate proceeding entirely.

Frequently Asked Questions

Why Homes Left Outside a Trust Can Create Serious Problems in San Diego

The issue of homes left outside a trust is especially important for California families and San Diego homeowners. In many California estates, the family home is by far the most valuable asset the settlor owned.

One major issue involves California property taxes and the parent-child exclusion rules. If a home is left outside the trust, delays in transferring the property after the settlor’s death may complicate or delay the filing of the parent-child exclusion claim.

This issue is particularly important in San Diego County, where many homes purchased decades ago for relatively modest amounts are now worth well over one million dollars. Many elderly homeowners in San Diego still pay relatively low property taxes because they purchased their homes many years ago.

Trustees should handle the parent-child exclusion correctly and file it on time. Otherwise, the county may reassess the property at its current market value. Even if the county later approves the exclusion, filing delays may still cause temporary property tax increases, financial consequences, or other complications for the beneficiaries.

For this reason, trustees and beneficiaries should pay especially close attention when a California home was unintentionally left outside a trust.

Summary

Assets left outside a trust do not automatically require probate. During many California trust administrations, trustees discover homes, bank accounts, vehicles, and other assets that the settlor never formally transferred into the trust during their lifetime.

However, depending on:

• the value of the remaining assets,
• the type of assets involved,
• and the language of the estate planning documents,

there may still be legal options available to transfer those assets into the trust without a full probate proceeding.

In many situations, trustees may potentially use:

• Heggstad petitions,
• Small Estate Affidavits,
• California DMV transfer procedures,
• or beneficiary designations

to avoid probate and complete the trust administration more efficiently.

Because every trust administration is different, trustees should carefully review all estate planning documents and asset titles before taking action regarding assets left outside a trust.

Why Work With Amichai Law for Trust Administration?

At Amichai Law, we understand that discovering assets left outside a trust can feel overwhelming for trustees and families already dealing with the loss of a loved one.

Our office helps California trustees navigate trust administrations involving:

• omitted trust assets,
• Heggstad petitions,
• probate avoidance strategies,
• real estate issues,
• and trust asset transfers.

Most importantly, we aim to provide clear communication, practical guidance, and steady support throughout the trust administration process so trustees can move forward with greater confidence and clarity.

Warning

Important: Trustees should not assume that assets left outside a trust automatically require probate, nor should they assume that a Heggstad petition, Ukkestad petition, Small Estate Affidavit, or other probate-avoidance procedure will be available. The availability of these options depends on the specific facts of the case, the value and type of the assets involved, and the language of the estate planning documents.

Trustees should carefully evaluate information they receive from financial institutions, title companies, and other third parties before deciding whether probate is required.

These organizations often follow internal policies and procedures. However, they do not provide legal advice regarding California probate or trust administration law.

I have personally seen situations where a bank representative told an executor or trustee that probate was required. Later, the executor or trustee discovered that a Small Estate Affidavit or another probate-avoidance procedure was available. In some cases, the family spent hundreds of dollars and lost months, or even more than a year, pursuing a probate that may not have been necessary.

For this reason, trustees should strongly consider consulting a California trust administration attorney before deciding whether probate is required.

Before making any decisions regarding assets left outside a trust, trustees should strongly consider consulting with an experienced California trust administration attorney. Incorrect assumptions regarding ownership, probate requirements, asset valuations, beneficiary designations, or available probate-avoidance procedures can result in unnecessary delays, increased costs, property tax consequences, or personal liability for the trustee.

Disclaimer

This article provides general educational and informational content only. It does not constitute legal advice.

Every trust administration is different, and the options available to a trustee will depend on the specific facts, assets, and estate planning documents involved. Reading this article does not create an attorney-client relationship between you and Amichai Law. If you have questions regarding a trust administration or assets left outside a trust, you should consult with a qualified California trust administration attorney regarding your specific situation.