Estate Planning in California and Resulting Trusts

Sometimes people ask a family member who has good credit to participate on a loan to purchase a home.

The family member’s name is added to title (ownership) even though they may pay little or nothing towards either the home’s original purchase price or its on-going mortgage, tax and maintenance payments of the residence.

What happens to ownership of the residence when the relative dies while still on title?

Hopefully, the relative’s estate planning leaves the property to the person(s) who really purchased the home, either by a written will or a living trust into which the partial ownership interest was transferred.

But what if the relative did not get around to taking care of this important detail?

In that case a very nasty legal dispute may erupt when the decedent’s heirs or beneficiaries under a will or trust, as relevant, seek to include the decedent’s partial ownership interest as part of the decedent’s estate, to the benefit of people who paid nothing towards the house.

That is more likely to happen when animosity, distrust or dissatisfaction exists amongst the surviving family members.

This unfortunate scenario happened to a client of mine when her mother died, without a will, still “owning” a one-third undivided interest in my client and her husband’s residence.

The other daughter probated their mother’s intestate estate, which otherwise did not require a probate (as it was appraised at under $150,000), and sought to include the mother’s partial ownership in the residence as an estate asset, to be divided amongst three different heirs.

Fortunately, through her deposition and documentary evidence, my client proved that her mother only participated on title at the lender’s request; not because she paid any of the associated purchase and ownership costs.

Both the true intentions of the parties to the loan and the equities (justice) of the situation demanded that the residence be removed from the mother’s estate. The question was finding a legal theory to support that common sense result.

Equity, the Anglo-American common law doctrine that fairness and justice prevail, provides that a “resulting trust” may be established by court order where necessary to give effect to the true intentions and equity of the situation.

A resulting trust means that the person whose name is nominally on title, in this case the deceased mother, is only there because of some underlying agreement that requires title to be transferred elsewhere.

Here, the agreement required to be given effect was for the administrator of the deceased mother’s estate to transfer title to the other daughter and her husband, the true and rightful owners of the residence.

All of this legal aggravation and expense could have been avoided if the mother had executed a will bequeathing her one third interest as she intended. 

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law.  His office is at 870 S. Main St., Lakeport, California.  Fordham can be reached by e-mail at dennis@dennisfordhamlaw.com or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com.