When the Trust Owns Real Estate, an LLC, and the Family Business

When a trust owns LLC interests, houses, and an operating business, the litigation runs on three tracks at once. Track one is title: what is in the trust (the Heggstad petition, Probate Code § 850). Track two is value: appraisals and the business valuation. Track three is control: who runs the property and the company while the case is pending, and that is where most of the cost sits.

Cash can be split with arithmetic. A Palo Alto house, a Sunnyvale rental, an LLC that owns a building in Mountain View, and Dad's stake in a Los Gatos company cannot. Somebody has to decide what to sell, what to keep, and who signs the leases. A sibling will disagree with every call. These are the cases our complex estates practice is built for.

What if the house was never deeded into the trust?

A trust controls only what was put into it, and often the biggest asset never was. The Menlo Park house is still deeded to Mom and Dad as joint tenants.

The fix is a petition asking the probate court to confirm that the property belongs to the trust. Lawyers call it a Heggstad petition or a Probate Code 850 petition. In Estate of Heggstad, a father's trust listed a property on its schedule of assets, but he never deeded it over. His written declaration that he held it as trustee was enough; there is "no requirement that the settlor/trustee execute a separate writing conveying the property to the trust."

The Heggstad trustee used a petition for instructions (Probate Code § 17200). Today the vehicle is Probate Code § 850. Notice is served at least 30 days before the hearing, and the court cannot shorten it (Probate Code § 851).

Later cases stretched the rule. In Ukkestad v. RBS Asset Finance, a trust assigning "all of his real and personal property" carried two parcels the settlor never deeded. In Kucker v. Kucker, a general assignment captured stock never re-registered, and in Carne v. Worthington the trust's own words conveyed a house without a deed. A signed trust that describes the property, even generally, usually wins the title question. The fight then moves to capacity and undue influence over the trust itself.

Can the trustee sell the house, and can siblings force a sale?

Once property is in the trust, the trustee holds title and, unless the document narrows them, has broad powers to sell, partition, lease, or keep it (Probate Code §§ 16226, 16227, 16231, 16220). But every power "is subject to the trustee’s fiduciary duties" (Probate Code § 16202), so the power to sell is not a reason to sell.

A sibling living in the house is the classic problem. The trustee may allow it, but the duty to "deal impartially" (Probate Code § 16003) means the others are owed rent, an offset, or a written reason why not. Before any sale, a notice of proposed action with at least 45 days to object (Probate Code § 16502) is cheap insurance.

Distribution is where the fight lands. The trustee can distribute in kind, pro rata or not, and "adjust resulting differences in valuation" (Probate Code § 16246). If the trustee instead deeds the house to four siblings as tenants in common, any of them can file the partition action California law gives co-owners as of right, absent a valid waiver (Code of Civil Procedure §§ 872.210, 872.710).

Where the siblings have no written partition agreement, the Partition of Real Property Act adds a step (Code of Civil Procedure § 874.311). The court sets fair market value, normally by a court-appointed appraisal (Code of Civil Procedure § 874.316). The siblings who did not ask for a sale then get 45 days to buy out the ones who did at that value (Code of Civil Procedure § 874.317). Our estate property disputes page covers the house fight on its own.

Who controls an LLC owned by a trust?

An LLC in a trust is not a building in a trust. The trust owns an interest in the company that owns the building, and the operating agreement governs that interest; the statute fills gaps only where the agreement is silent (Corporations Code § 17701.10).

First, member-managed or manager-managed? A California LLC is member-managed unless its articles say otherwise (Corporations Code § 17704.07). Members then decide ordinary matters by majority and need everyone's consent outside the ordinary course. In a manager-managed company the managers decide, and if Dad was the sole manager with no named successor, nobody may have authority to sign a lease.

Second, is the trust a member or only a transferee? A transfer by itself carries the right to distributions, not the right to vote, manage, or usually see the books (Corporations Code § 17705.02). So if the trust owns LLC units but was never admitted as a member, the trustee may get the checks while a sibling who was admitted holds the vote.

When members deadlock, the exit is a civil suit for judicial dissolution where management "is deadlocked or subject to internal dissension" (Corporations Code § 17707.03). The other members can stop it by buying the moving party's interest for cash at fair market value.

Can a trustee keep running the family business?

A trustee may continue a business in the trust (Probate Code § 16222). But the same section allows it "only as authorized by the trust instrument or by the court" and, otherwise, "for a reasonable time pending a court hearing on the matter or pending a sale" of the business. Running Dad's company for three years under a silent trust, with no court order, is a breach even if the company did well.

In a family business inheritance dispute, the trustee-sibling who also draws a salary from the company is the flashpoint. A trustee may not "use or deal with trust property for the trustee’s own profit" (Probate Code § 16004). A salary the trustee sets for the trustee looks exactly like that unless the trust or the court approved it, so disclose it, keep it at market, and get it approved in writing. Threatened with a lawsuit? Get your own lawyer, and learn who pays before you bill the trust; our guide for the trustee a beneficiary is threatening to sue starts there.

If the trustee is the problem, the court can hand the property to a receiver or temporary trustee (Probate Code §§ 16420, 17206). It can suspend the trustee's powers during a removal case if the property "may suffer loss or injury" (Probate Code § 15642).

How is trust real estate or a family business valued?

A court accounting needs a schedule of estimated market values, and for real estate or a closely held business that "may be satisfied by a good faith estimate by the fiduciary" (Probate Code § 1063). An appraisal is what wins a distribution fight.

Which date governs, death or distribution? A Peninsula house can move by seven figures between the two, and the trust or the court decides. And do discounts for lack of control and marketability apply to the company at all? Valuation witnesses argue those as concepts before they argue size. This article gives no percentages because no honest one can.

Date-of-death value also sets the income-tax basis of inherited property (26 U.S.C. § 1014); the details belong to the trust's CPA.

What happens when sibling co-trustees cannot agree?

Parents in Atherton and Woodside love naming all the children co-trustees. Unless the document says otherwise, co-trustees can act only by "unanimous action" (Probate Code § 15620).

The court will instruct the trustees (Probate Code § 17200), appoint a temporary trustee (Probate Code § 17206), or remove co-trustees where hostility "impairs the administration of the trust" (Probate Code § 15642). In Trolan v. Trolan, one of six sibling co-trustees wanted her share in cash; the trial court removed all six and ordered everything liquidated. The Court of Appeal reversed.

A court "cannot substitute its judgment and discretion for that of the trustees' if the trustees are acting within proper limits," and one sibling's disagreement over valuation "does nothing to impair" the majority. The court could enforce the distribution the document required. Whether it may ever pick the method, sale or in kind, is unsettled beyond that case.

Most of these cases end in a room, not at trial. The court's Early Settlement Conference Program (Probate Local Rule 3(B)) is not confidential; private mediation is (Evidence Code § 1119). A sibling who gets proper notice of a court-ordered mediation and skips it can be bound by the deal the others make (Breslin v. Breslin). See our guide to multi-million sibling trust disputes.

Rothrock Legal litigates only, and on a multi-entity estate we bring in a forensic accountant and a business appraiser early. Arthur Rothrock is the co-founder and CEO of Legion, an AI litigation platform, which is why a small firm can read a decade of LLC ledgers in days. He has been named to the Super Lawyers® Rising Stars list (Northern California) for 2020 through 2026 and to Best Lawyers: Ones to Watch® in America for 2024 through 2027. He serves as Vice Chair of the American Bar Association's Artificial Intelligence and Robotics National Institute.

What should you do next?

1. Pull title on every property and the operating agreement for every entity, then get a dated appraisal on each.
2. If something is out of the trust, file the Heggstad petition early; notice runs 30 days and cannot be shortened (Probate Code § 851).
3. Trustee: read Probate Code § 16222 against the trust, petition for instructions if it is silent on the business, and send a notice of proposed action before any sale. Our California trustee duties checklist covers the rest.
4. Beneficiary: ask in writing for the accounting and the operating agreements; a trustee who ignores a written request for 60 days, with no account in the prior six months, can be ordered to comply (Probate Code § 17200). Our guide to trustee breach of fiduciary duty and removal explains the petition.
5. Learn who pays first. The trust repays "Expenditures that were properly incurred in the administration of the trust" (Probate Code § 15684); confirming title usually qualifies, fighting over your own share does not. See can a trustee use trust funds to pay attorney fees.