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California is a community property state that recognizes both community and separate property assets.
Assets that are inherited by a married person are separate property (i.e., owned and controlled by the inheriting spouse alone) unless it is commingled (e.g., money deposited into a joint account) or re-titled (e.g., real property) to include the married person’s spouse.
If so, the other spouse can acquire a community property or separate property interest in the inherited separate property asset. Such inherited assets may be a difficult issue when a married couple does estate planning.
Most married people do a single joint living trust into which they transfer their real property and non retirement investment accounts, especially the assets that they acquired together from marital earnings. Often that means the surviving spouse inherits all, or almost all, the deceased spouse’s share of the trust estate.
However, a married person’s inherited assets may require an exception, especially when the asset is co-owned with siblings (or other family) or when the married person has their own children from a prior marriage.
Inherited assets co-owned by siblings may be excluded by the siblings when doing their joint estate planning with their spouses. That is, the siblings themselves may either expect or agree to keep their own undivided share in co-owned inherited property exclusively within the family bloodline (i.e., excluding their spouses and any step children).
Consider siblings who inherit co-ownership in a family real estate or a family business. Such assets are regarded by the siblings as special assets for personal or economic reasons. The siblings may agree that such assets stay in their family bloodline. Perhaps each sibling does the necessary estate planning to ensure the outcome. Alternatively one or more siblings may be undecided and do nothing. Indecision can lead to unintended outcomes.
Consider the sibling who keeps an undivided fractional ownership interest in real property outside of their joint husband and wife living trust. The sibling’s accompanying will may likely leave everything outside the trust (excluding any retirement and bank accounts that pass automatically to death beneficiaries) to the couple’s joint trust. If so, the surviving spouse may have to probate the deceased spouse’s will to claim the real property interest, thus partly defeating the benefit of their probate avoidance joint living trust.
Assets that are inherited by a married person are separate property (i.e., owned and controlled by the inheriting spouse alone) unless it is commingled (e.g., money deposited into a joint account) or re-titled (e.g., real property) to include the married person’s spouse.
If so, the other spouse can acquire a community property or separate property interest in the inherited separate property asset. Such inherited assets may be a difficult issue when a married couple does estate planning.
Most married people do a single joint living trust into which they transfer their real property and non retirement investment accounts, especially the assets that they acquired together from marital earnings. Often that means the surviving spouse inherits all, or almost all, the deceased spouse’s share of the trust estate.
However, a married person’s inherited assets may require an exception, especially when the asset is co-owned with siblings (or other family) or when the married person has their own children from a prior marriage.
Inherited assets co-owned by siblings may be excluded by the siblings when doing their joint estate planning with their spouses. That is, the siblings themselves may either expect or agree to keep their own undivided share in co-owned inherited property exclusively within the family bloodline (i.e., excluding their spouses and any step children).
Consider siblings who inherit co-ownership in a family real estate or a family business. Such assets are regarded by the siblings as special assets for personal or economic reasons. The siblings may agree that such assets stay in their family bloodline. Perhaps each sibling does the necessary estate planning to ensure the outcome. Alternatively one or more siblings may be undecided and do nothing. Indecision can lead to unintended outcomes.
Consider the sibling who keeps an undivided fractional ownership interest in real property outside of their joint husband and wife living trust. The sibling’s accompanying will may likely leave everything outside the trust (excluding any retirement and bank accounts that pass automatically to death beneficiaries) to the couple’s joint trust. If so, the surviving spouse may have to probate the deceased spouse’s will to claim the real property interest, thus partly defeating the benefit of their probate avoidance joint living trust.
Moreover, the deceased sibling’s share may now perhaps, depending on the trust’s provisions, go to their surviving spouse who may then co-own the special assets with in-laws; thus also undoing the siblings’ agreement. Alternatively, a sibling may do no estate planning at all, in which case their surviving spouse and children jointly inherit their separate property assets, perhaps by probate.
If a married person has separate children whom they did not raise as minors, they often want their own children (and not step children) to inherit separate property, including inheritances, that they did not purchase with their spouse. That may entail the married person establishing a separate property trust to exclude their spouse from inheriting or controlling such assets. The separate property trust may provide possible lifetime benefits to the surviving spouse and either immediate or eventual distribution to the children, as drafted.
Alternatively, the assets may be included within the joint trust as the contributing spouse’s separate property assets. Such assets may pass at the contributing spouse’s death to that spouse’s own children (bypassing the surviving spouse), may be distributed to the children (of the contributing spouse) subject to a life estate for the surviving spouse, or else may be held in further trust for the lifetime benefit of the surviving spouse, with distribution to the children at her death.
What outcome is attained depends on whether or not appropriate estate planning and proper administration of the estate planning occur. The estate planning must be drafted in contemplation of what its eventual administration will require and mean at that time for those concerned.
The foregoing discussion is not legal advice.
Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at
