Can We Recover Assets Gifted Before Death

I recently spoke with Emily, a woman devastated to learn her mother had transferred the family beach house to her brother, David, just six months before passing away. Emily believes her mother was unduly influenced, and now fears losing not only a cherished family heirloom but also the financial benefit of that property in the estate. These situations – where assets disappear into the hands of others before death – are far more common than people realize, and often far more complex to untangle than a simple will contest. I’ve been practicing estate planning and acting as a CPA for over 35 years, and I’ve seen firsthand how these pre-death transfers can create significant hardship and legal battles. As a CPA, I also understand the tax implications, especially the loss of that crucial “step-up in basis” for capital gains purposes, which can drastically increase the tax burden on inherited assets.

What Transfers Are Subject to Challenge?

Not every gift is recoverable. The law recognizes that people have the right to give away their property during their lifetime. However, certain transfers are “red flags” and may be subject to legal challenge. These include gifts made close to the date of death, those to caregivers, and transfers where the grantor (the person making the gift) lacked the capacity to understand what they were doing. A key factor is the timing. While there isn’t a strict deadline, transfers made within the 90 days before death receive heightened scrutiny.

How Does Undue Influence Play a Role?

Undue influence is a common claim in these cases, particularly when the beneficiary is a caregiver. Probate Code § 21380 creates a presumption of fraud if a care custodian (nurse, friend, or helper) is named as a beneficiary in a trust amendment drafted during their service, shifting the burden of proof entirely onto them to prove they didn’t coerce the senior. This doesn’t automatically mean the gift is invalid, but it significantly increases the difficulty for the beneficiary to defend it. We’ve seen scenarios where a caregiver isolates an elderly parent, subtly manipulates them into changing their estate plan, and then benefits handsomely at the expense of other family members. Demonstrating this requires gathering evidence—emails, text messages, witness testimony—and it can be an uphill battle.

What If My Loved One Lacked Capacity?

If your loved one didn’t have the mental capacity to understand the nature of the gift at the time it was made, the transfer may be deemed invalid. This can be due to dementia, Alzheimer’s, or other cognitive impairments. Proving lack of capacity often requires medical records, expert testimony, and evidence of erratic behavior around the time of the transfer. However, simply being elderly or having some health problems isn’t enough; the incapacity must be severe enough to invalidate the transfer.

What About “Sham” Transfers to Avoid Creditors?

Sometimes, gifts are made not to benefit a specific person, but to shield assets from creditors. If the transfer was made with the intent to defraud creditors—for example, to avoid paying nursing home bills—it can be set aside as a fraudulent transfer. This requires proving that the grantor was insolvent at the time of the transfer and that they intended to hide assets from their creditors.

Can We Recover Assets Transferred Into a Trust?

Gifts made into a revocable living trust are generally treated the same as direct gifts. If the trust was established legitimately and the grantor had the capacity to create it, it’s much harder to challenge. However, if the trust was amended shortly before death to benefit a particular beneficiary, the same principles of undue influence and capacity apply. Challenging a trust requires filing a formal petition with the court, and strict deadlines apply. Probate Code § 16061.7 stipulates that once a trustee serves the mandatory § 16061.7 Notification, a strict 120-day clock begins; if a beneficiary fails to file a contest within this window, they are essentially barred from challenging the trust’s validity forever.

What if the Asset is No Longer Available?

If the gifted asset has been sold or spent, recovering its value becomes more difficult. You may be able to pursue a claim against the beneficiary for the monetary value of the asset, but collecting on that judgment can be challenging if the beneficiary has limited assets. This is where the CPA side of my practice comes in – tracing the funds and identifying any remaining assets the beneficiary may have is crucial.

What About Digital Evidence?

Increasingly, evidence of undue influence or incapacity exists in digital form—emails, text messages, social media posts. Securing this evidence can be critical, but it’s not always easy. Without specific RUFADAA authority (Probate Code § 870), a trustee or beneficiary may be legally blocked from subpoenaing critical digital evidence (emails, DMs, cloud logs) needed to prove undue influence or incapacity. We proactively address this by including provisions in our trust documents allowing for broad digital discovery.

What if the Home Wasn’t Titled in the Trust?

A common scenario involves a home not formally titled in the trust. For deaths on or after April 1, 2025, if the dispute involves a home valued up to $750,000 that isn’t titled in the trust, a ‘Petition for Succession’ under AB 2016 (Probate Code § 13151) may be a faster resolution than a full Heggstad trial. It’s important to distinguish this as a “Petition” (Judge’s Order), NOT an “Affidavit.” The old system of Heggstad petitions, while still valid, can be much more time-consuming and costly.

What failures trigger court intervention and contests in California trust administration?

The advantage of a California trust is control and continuity, but this relies entirely on accurate funding and disciplined administration. Without clear asset titles and strict adherence to fiduciary standards, a private trust can quickly become a subject of public litigation over mismanagement, capacity, or undue influence.

• Asset Protection: Explore permanent trust structures for asset shielding.
• Post-Death Creation: Understand testamentary trusts.
• Policy Management: Utilize an irrevocable life insurance trust for estate taxes.

A stable trust administration relies on the trustee’s ability to balance investment duties, beneficiary communication, and tax compliance. When these elements are managed proactively, families can avoid the emotional and financial drain of litigation.

Verified Authority on California Trust Litigation & Disputes

• The 120-Day Rule (Probate Code § 16061.7): California Probate Code § 16061.7
  The most critical statute in trust litigation. It establishes the 120-day deadline for contesting a trust after the notification is mailed. Missing this deadline usually ends the case before it starts.
• Caregiver Presumption (Probate Code § 21380): California Probate Code § 21380
  This statute protects seniors by presuming that gifts to care custodians are the result of fraud or undue influence. It is the primary weapon used to overturn “deathbed amendments” that favor a caregiver over family.
• No-Contest Clauses (Probate Code § 21311): California Probate Code § 21311
  Defines the strict limits on enforcing penalty clauses. It explains that a beneficiary can only be disinherited for suing if they lacked “probable cause” to bring the lawsuit.
• Petition for Instructions (Probate Code § 17200): California Probate Code § 17200
  The “gateway” statute for most trust litigation. It allows a trustee or beneficiary to petition the court for instructions regarding the internal affairs of the trust, from interpreting terms to removing a trustee.
• Asset Recovery “Backup” (AB 2016): California Probate Code § 13151 (Petition for Succession)
  Effective April 1, 2025, this statute provides a streamlined path (Judge’s Order) to resolve disputes over ownership of a primary residence valued up to $750,000, often avoiding costly Heggstad litigation.
• Digital Discovery (RUFADAA): California Probate Code § 870 (RUFADAA)
  Essential for modern litigation. This act governs who can access a decedent’s digital communications—often the “smoking gun” evidence in undue influence or capacity trials.