I recently had a client come in to do a Trust, in hopes that he could protect his assets from his wife, who he was in the process of divorcing. Unfortunately for him, California is a community property state - which means that everything earned or acquired during a marriage belongs 50% to each spouse. Saying otherwise in a Will or Trust will not change or override the nature of community property.
However, each spouse is entitled to bequeath their 50% to whomever they choose when they die. Many couples choose to leave their half of community property to their spouse, and should you fail to do an estate plan, California will automatically give the deceased spouse's 50% to the surviving spouse. This means that the assets of most married persons in California pass to their spouse when they die. However, it does not have to be that way.
Let's address the exact meaning of "community property" before we discuss it's possible paths for distribution.
Firstly, property is defined as anything that can be bought or sold, such as a house, car, furniture, jewelry, art, etc. Property is also defined as anything that has value, such as cash or bank accounts, security deposits, pension plans, stocks, 401k's, life insurance policies, businesses, and patents.
Community property includes all property that was purchased and earned during a marriage or domestic partnership, and all debt accrued during a marriage. Community property does not include gifts or inheritance. To accurately determine if an asset is community property, you can look at the source of the money used to purchase that asset. For example, even if property was purchased during a marriage, that property may not be community property if the funds used to purchase it were earned prior to the marriage. As you can see, this can begin to get a bit complicated, especially if property is purchased with both money earned prior to a marriage and money earned during a marriage.
As I stated previously, each spouse has the right to choose who inherits their 50% of community property assets. This can be specified in their Will or Trust. One thing to be aware of is how an asset is titled, and if there are any beneficiary listings. Deeds and beneficiary listings will override a will or trust.
For example, take a look at the deed of your home. Does it say anything about Joint Tenancy or Rights of Survivorship? These two terms will override anything you put in a Will or Trust. Generally, property listed under two names that is held in either Joint Tenancy or with Rights of Survivorship automatically passes to the other person when one dies. This is just one example of the complications that can arise when doing your Estate Plan, and why I always recommend speaking with an attorney who specializes in Estate Planning before making any changes.
Now, what happens to Community property if you don't do a Will or Trust?
Well, as stated above, and pursuant to CA Probate Code 6400, your share simply passes to your spouse. And when that spouse dies, your property, along with theirs, passes either according to their will, or according to intestate succession (CA's will for you).
When it comes to community property, separate property, and quasi-community property, inheritance laws can begin to get complicated. I highly recommend speaking with a qualified attorney to help you determine your best option for carrying out your wishes.
For your free Estate Planning Consultation, call my SF East Bay Estate Planning Firm at 925-322-1795.