Community Property Concerns and Estate Planning. 

Part Two

 

Why Should I Worry About Community Property?

As Part One of this blog described, California’s Community property law can affect how property is distributed, both upon death or, God forbid, a potential divorce.  Therefore, care must be taken during the estate planning process to prevent an undesired outcome.  If the estate planning attorney fails to inquire as to the nature and circumstances of how various property was acquired, you may find yourself an unhappy person down the road.  If a party has a significant separate property interest in a home and an estate plan gets created with, let’s say, a Revocable Living Trust, then the home gets put into the Trust in a certain manner, here is what may happen: even though the Trust can be revoked and eliminated during marriage or at divorce, the “improper” deeding of the home can cause the non-owner spouse to be entitled to a potentially large portion of the home. 

 

Now, sometimes couples won’t care about such an outcome when presented with the issue to consider for the first time.  It may be prudent to think it over carefully in situations such as this.  Especially in relatively new marriages.  Your attorney should advise you as he or she learns of your particular circumstance.  Fortunately, the majority of us do not find ourselves in such a situation because we either marry young, or combine as two people with relatively the same financial profile.  But divorce does happen, and those with separate property should at least be appraised of the issues that potentially influence their lives. 

 

As said before, the character of both the spouses, as well as the community’s property is important to an estate plan. 

How Does California Community Property Law Affect an Estate Plan Upon Death?

Another thing to consider is how certain property passes upon a person’s death.  If you and your spouse own a home, when the first spouse dies the title may determine to whom the house passes.  Tenants in Common is one manner in which title can be held.  With Tenants in Common, each party is said to own an undivided interest in the whole property.  Thus, if there are two Tenants, then each owner owns one-half of each square foot, not just half.  Another way to think of this concept is if the land is 4 acres, each Tenant owns one-half of each acre, and not one tenant owning two particular acres, and the other tenant owning the other two acres.  Each tenant is free to sell their interest in the land, or dispose of it upon their death.  However, all parties are required to join in selling the entire property.  Moreover, a property held as tenancy in common will have to go through probate.

With Joint Tenancy or property held as Community Property with Right of Survivorship, the decedent’s interest passes to the survivor, and does so without the need to go through probate.  Sometimes people think that they can transfer their home by putting their child or children on the title in such a manner.  This is not advisable for a number of reasons.  One is that you will need all persons on the title to agree if you decide to sell the property.  It also allows the home to be used to satisfy a lawsuit or debt should any of the persons on the title be sued or get into financial trouble.  This method may also trigger a substantial tax liability.  Because ownership passes on death, the decedent may not dispose of his or her interest in the property upon their death.

Therefore, it is important to discuss your intentions with an attorney before important decisions are made, and while it is desirable to hire an attorney to create your estate plan instead of going to a “trust mill” or a document creation-style company like LegalZoom.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

My number one concern is to listen to your wishes then create solutions in drafting your estate planning documents.  Please call me today and let’s start planning!

 

Thanks so much for reading!

Dan Powell

1-619-980-2297

 

 

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

Community Property Concerns and Estate Planning. 

Part One

What is Community Property?

So what is Community Property?  What concerns should I have when I do a Revocable Living Trust, or a Will in California?  California is a community property state.  Other community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  Alaska is an opt-in state and residents can elect to make their property community property.   Community property rules mean that in California there is a presumption that property acquired during marriage is community property, and each spouse owns half of that property.  This can be money in the form of a paycheck, or property such as a car or even something as small as a book or television.  Separate property is, generally speaking, property acquired while single, after separation, or property acquired during marriage by gift or inheritance. Separate property can become community property in a few different ways, and we will discuss some of those ways in which the character of separate property can change to community property here in my Blog.

Even residents of non-community property states that move to a community property state are affected by community property law by something called quasi-community property.  Quasi-community property is property that was acquired by a married person or couple in a non-community property state that would be considered community property in a community property state.  When the couple moves to a community property state, the quasi-community property will be treated as community property for the purpose of either death or divorce.

 

Can Separate Property Become Community Property in California?

Yes, separate property of one spouse can become community property in a variety of ways, some of which will be discussed here in this blog.  For that matter, community property can become separate property, and you can even change the separate property of one spouse into the separate property of the other spouse.  This changing of the character of property is called transmutation and is dealt with under California Family Code section 850-853 and found here:

http://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=FAM&division=4.&title=&part=2.&chapter=5.&article=

First, in determining how property is transmuted, we have to decide what kind of property we are talking about.  Money is fairly easy to transmute to community property.  If separate property cash is deposited into a community property account, and becomes difficult or impossible to trace, it will likely be considered community property.   In California law, there is also a “deed presumption”.  Let’s say you have a person that buys a home and then gets married later.  The home is separate property.  Depending on how mortgage payments are made, the community may end up owning a fractional interest in the home.  However, let’s say that at some point in the marriage the spouse puts the other spouse on the home’s deed.  This may happen if the home gets refinanced, or if the home gets new deeds prepared in order to put the home into a revocable trust that gets created during the marriage.  Even though the trust is revocable, the action of putting the non-owner spouse on the deed can have a serious financial impact on the owner spouse if the couple gets a divorce. 

 

Community property law can affect how property is distributed in California.

 

So as you may imagine, the character of property is very important to an estate planning attorney in community property states, and perhaps especially in areas where property values are so high like in San Diego and Southern California generally.

 

Please see Part Two in my blog for more on this discussion.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

My most important job is to listen to your wishes then suggest solutions in creating your estate plan.  Call today and let’s start planning!

 

Thanks for reading!

 

Dan Powell

1-619-980-2297

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

****************

This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

 

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