Heaps v. Heaps
124 Cal. App. 4th 286, 21 Cal. Rptr. 3d 239 (2004)
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Rule of Law:
When a trust agreement permits a trustee to hold trust property in the trustee's own name, merely changing the title of a trust asset to the trustee's personal name is insufficient, by itself, to remove the asset from the trust. Some affirmative act beyond a mere change in the form of title is required to validly withdraw the asset.
Facts:
- In 1985, George and Barbara Heaps created a revocable living trust, naming themselves as trustees and placing their Circle Haven residence into it via an unrecorded quitclaim deed.
- The trust agreement included Section 5.06, which allowed the trustees to hold trust property in their own names without designating it as trust property.
- The trust also included Section 1.06, which required a 'duly executed instrument' to amend or revoke the trust.
- In 1990, George and Barbara sold the Circle Haven property and took title to the proceeds, a note and deed of trust, as joint tenants.
- In 1994, Barbara died, causing the trust to become irrevocable.
- George married his second wife, Mary Ann Heaps, a few months after Barbara's death.
- In 1996, George and Mary Ann created a new trust and transferred the proceeds from the Circle Haven sale into it.
- After George's death in 2002, Mary Ann transferred those same assets into her own personal revocable trust.
Procedural Posture:
- After George Heaps' death in 2002, William Heaps and Frank Ciotti, as trustees of the 1985 trust, sued Mary Ann Heaps in trial court for conversion of trust assets.
- The trial court entered a judgment in favor of the plaintiffs, William Heaps and Frank Ciotti, ordering Mary Ann Heaps to pay over the assets.
- Mary Ann Heaps (appellant) appealed the trial court's judgment to the Court of Appeal of California.
- William Heaps and Frank Ciotti are the respondents in the appeal.
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Issue:
Does taking title to the proceeds of a sold trust asset in joint tenancy, without any other formal instrument, effectively remove that asset from a trust when the trust agreement explicitly permits the trustees to hold trust property in their own names?
Opinions:
Majority - Sills, P. J.
No. Taking title to the proceeds of a sold trust asset in joint tenancy does not, by itself, remove the asset from the trust when the trust document allows trustees to hold property in their own names. The court reasoned that to give effect to every clause of the trust, particularly Section 5.06 which permitted holding title personally, some affirmative action beyond a mere change in title was necessary to remove assets. The flexibility of Section 5.06 created a 'default setting' where property remained in the trust regardless of how title was held, unless an instrument of amendment or revocation was executed as required by Section 1.06. Because George and Barbara only changed the title form and did not execute any instrument to remove the proceeds from the trust, the assets remained trust property. Therefore, George and Mary Ann's subsequent transfers of these assets constituted conversion.
Analysis:
This case serves as a significant warning about the potential pitfalls of boilerplate provisions in living trusts. It establishes that a clause allowing trustees to hold property in their own names creates a strong presumption that assets remain in the trust, even if retitled. This decision increases the burden on trustees who wish to remove property from such a trust, requiring a clear, affirmative act of revocation or amendment rather than relying on ambiguous actions like retitling. The ruling protects the interests of remainder beneficiaries by preventing trustees from casually commingling or withdrawing assets without clear documentation.
