Most of us who have lived in California know that California is a community property state. But what does that mean, and how does that affect estate planning for California residents?
Here’s how it works: when you are single, everything you own and earn is your property and nobody else’s. In legal terms, this is your separate property.
That changes when you get married. As soon as you say your vows, everything you earn or acquire belongs equally to you and your spouse. Your paycheck, and your spouse’s paycheck, is considered to belong to both of you. The new TV you buy for your family room belongs equally to both of you. The copyright for the book you just finished writing belongs equally to both of you (a somewhat controversial court decision that I don’t have time to explore further in this article). In essence, everything now belongs to both of you jointly. In legal terms, this is your community property.
There are some exceptions to this rule. If you had separate property coming into the marriage, that stays your separate property unless you do something to change it to community property – for example, if you create a new joint bank account and have your paychecks deposited there, but keep your previous bank account around, the money in the previous bank account is still your separate property. In addition, gifts or inheritances to one spouse are considered the separate property of that spouse. If you buy something with separate property money, the item is also considered to be separate property. However, if you put separate property money into the joint account, it’s generally assumed that you’ve converted it into community property money.
So what does this mean for estate planning? In some ways, it makes things easier. Community property automatically goes to the surviving spouse, so probate is often not required when the first spouse dies without a trust. It also means that a married couple can have one joint trust instead of having a separate trust, which makes the estate planning process a bit simpler. However, when a married couple has both separate and community property, it makes the estate planning process a bit trickier to navigate. That’s especially true if you want your separate property to go to someone other than your spouse – in that case, you may want one trust for your separate property and a second trust for your community property.
If this makes no sense whatsoever, or you simply want to know more, you are welcome to email me at kaway@kawaylaw.com.
