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.
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!