Most married couples I work with create a "joint" living trust. Basically, a joint living trust is an enforceable legal document created by two people outlining the following (1) Who they are and who's in charge if they can no longer manage their own affairs - due to death or disability, (2) and who gets what after they both pass away.
Sure, I'm simplifying it quite a bit but the point is that it's a joint document created by the married couple. After creating their living trust, the couple needs to "fund" this trust by re-titling their assets in the name of the trust. So their assets wouldn't be owned in their names anymore, but rather by their trust. For example, their house would not be owned by "John Smith and Mary Smith as joint tenants." Instead, their house would be owned by "The Smith Family Trust, dated January 23, 2017." In some cases, the assets wouldn't be owned by the trust per se, but instead might be payable to the trust by naming the trust as a beneficiary of certain assets. For example, the couple might choose to name their trust as the beneficiary of a life insurance policy.
So now that we know that most married couples create a joint living trust, there are times when it makes sense to have "his" and "hers" living trusts. Instead of having a common joint trust, each spouse would have their own living trust. This solution might make sense when husband and wife are trying to maintain separate assets, especially if they are getting married later in life. Each person may already have their own assets and their own ideas of how those assets should be distributed. They may wish to keep their assets separate. They might each have children from prior relationships. In some cases, one person might already have a living trust in place. As such, in certain cases, it might make sense to establish his and hers living trusts.
Therefore, husband John would have his own living trust named "The John Smith Living Trust," and his wife would have her own living trust called "The Mary Smith Living Trust." Each trust would be managed by the respective spouse - John would manage his trust and Mary would manage her trust. They can make whatever changes they want to their own trusts, outline any beneficiaries they want, etc. Basically, they'd be king/queen of their own castle. It might also be a good idea for John and Mary to sign a document outlining this understanding they have between one another.
If they want to have some "joint" assets, they can always do that - via a joint checking account or other solution. Basically, John's trust assets (those titled in the name of his trust) would be distributed according to his wishes, and Mary's trust assets (those titled in the name of her trust) would be distributed according to her wishes. That being said, each party can still make distributions and provisions for their spouse, but having his and hers living trusts might make sense if they both want to maintain some sense of their own autonomy over their own assets. After all, couples who get together later in life often have their own assets and often desire to mantain control over those assets.
If you would like to discuss your estate planning needs, please call our office at (661) 414-7100. Visit our "Get Started" or our "Contact" page if you need assistance.
When married couples create their estate plan, an issue that sometimes arises is whether or not certain assets are "separate" property or "community" property. In fact, the characterization of property can lead to disagreements.
Simply put, assets accumulated during a marriage are generally presumed to be community property, meaning the property belongs equally to both spouses. For example, lets say John and Sally buy a house together during their marriage. One day, John decides that he wants the house to go to his brother Stan after John passes away. John even goes to a lawyer and creates a will that says, "My house shall go to my brother Stan after I pass away." You see, that's not going to work because the house also belongs to Sally too. John can't simply give that house away unilaterally. It's not his to give away. The house is community property.
However, let's say that Sally's parents pass away and she inherits their vacation condo in Big Bear. In California, anything one inherits or receives as a gift is generally presumed to be the separate property of that person. Sally takes title to the condo but keeps it in her name. In Sally's will, she gives the condo to her cousin Fred if Sally passes away. Can she do that? She probably can because the condo is Sally's separate property. Generally speaking, a husband and wife can dispose of their separate property any way they wish. Sometimes, a husband or wife in a married couple inherits property and they want to make sure it stays on their side of the family. Characterization of property is very important.
Recently, I met a lovely lady named Susan. She had two children from a prior marriage. Many years ago, Susan's husband died. A few years later she married Tom and they lived together in Susan's house for 20 years. However, during that time, Tom made many improvements to the house, paid for repairs, helped pay the property taxes, etc. Susan wanted the house to go to her children after she passed away. I told her that would be fine, but it would be best to make sure that Tom agreed the house was indeed her separate property. It's not that Tom would have made a stink about it, but he had children of his own and I was concerned Tom's children might try to lay some claim to the home after all the money and time Tom spent on the house. Tom agreed and signed the separate property agreement. Susan's living trust provided that if she died first, Tom could remain living in the house until he died or decided to move out. Then the property would indeed be distributed to her children.
The inverse is also true. Roger and Betty got married late in life. When Roger died, his brother Skip showed up and tried to get all of Roger's artwork. Skip told Betty the paintings were owned by Roger before he got married to Betty, and therefore, the artwork belonged to Roger's side of the family. Well, when creating their estate plan, Roger and Betty had signed a community property agreement that specifically stated that all their belongings, including Roger's paintings, were "community property" and therefore belonged to Betty after Roger died.
A property agreement between spouses can be a very helpful legal tool when it comes to clearly designating property as community or separate. If your estate is facing similar issues, call our office to see if we can help.
In California, the default assumption is that assets accumulated during your marriage are "community property" (belonging to both husband and wife). What about assets accumulated BEFORE marriage? What about assets that are inherited by a spouse or gifted to a spouse?
Depending on the marriage and larger family dynamics, it may be helpful to agree in writing what assets are considered "community" and what assets are considered "separate," if any. This may be especially important in "blended families" where there are children from previous relationships.
In some cases, one spouse or another may wish to keep certain property "separate" from the other spouse. That doesn't mean they want to "hide" the assets, but perhaps they want that particular asset to stay on "their side" of the family or perhaps to make sure that asset goes to one or more beneficiaries upon the first or second death. If the surviving spouse considers an asset to be "community," they may try to take control over that asset. They might give it to someone else, liquidate it, or worse...squander it.
Recently, one of my clients inherited real property from her mother. She didn't want her husband squandering that asset and wanted control over its ultimate distribution. In that case, I told her she could call it "separate" property all day, but that didn't mean her husband would agree to that and would not challenge that at some point (Property inherited or gifted to you is your separate property but that isn't always iron-clad, especially over time). However, in her case, he was willing to come into the office and sign an agreement indicating that he considered that particular asset to be her separate property. That way, she could more easily make sure that asset stayed on her side of the family. She wanted the asset to go to her children but couldn't be sure her husband would do so if he considered the asset to be "community" in nature.
In another case I had, two people were widowed and getting married to each other late in life. Their respective families were very nervous that each would divest the other of their assets, either purposefully or inadvertently. Therefore, we designed an agreement that basically says "what's his is his," and "what's hers is hers." They agreed to never assert community property ownership over the other's assets. That way, each person could fully control the distribution of any assets that were in his/her name or in the name of their respective living trust.
While discussing these issues can be uncomfortable and perhaps awkward at times, doing so can really help prevent problems in the family later on. If you wish to discuss your estate plan, please call my office for an appointment. The number is (661) 414-7100.
This blog post is a "guest-post" by my colleagues at the Reape-Rickett law firm. The attorneys at Reape-Rickett handle divorces, custody matters, child support issues and related family law matters in Santa Clarita, CA and surrounding communities.
What do estate planning attorneys and dissolution attorneys have in common?
The short answer is ‘more than you may think’. Consider the case of In Re Marriage of Holtemann. In this divorce case, Husband and Wife were married in 2003 and separated a short three years later. Husband had a number of assets while Wife did not have many. As many estate planners know that with considerable assets, spouses must regard considerable taxes upon death if the spouses fail to make the appropriate estate-planning decisions. These parties did just that and sought the appropriate guidance. The parties prepared a Living Trust and a Spousal Property Transmutation Agreement so as to minimize their estate tax. What this Spousal Property Transmutation document set forth was that all of Husband’s considerable separate property was transmuted to community property. Without getting into too much legal-speak, in a divorce action, when a spouse comes into a marriage with assets he/she had prior to the marriage, and does nothing to affect the title of those assets, they will remain his/her separate property upon divorce. Things purchased during the marriage will be presumed community property or owned by both spouses. Back to the Holtemann case. These parties, again to limit estate taxes, indicated in this document that all of Husband’s separate property was changed (the official word is “transmuted”) to community property.
In 2006, Wife files for divorce. After separation, realizing that in the Trust he changed all his separate property from his sole ownership to jointly with his Wife, now states that the Trust is revoked in an effort to cancel the transmutation. At their divorce trial, Wife, of course, uses the Trust to show all the property is owned 50-50 and she should be awarded her one-half. The trial court agreed with Wife and awarded her one-half of the property. Of course, Husband appealed that decision. The Court of Appeal upheld the trial court’s ruling and Wife was entitled to one-half of the property. The Appeals Court looked to whether or not there was a change or transmutation of the property from separate to community and not why the parties were interested in making the change, i.e., to save on estate taxes. The Court of Appeals stated that the evidence at the trial level was clear that Husband was fully aware of what he was doing with the property and the language used in the Separate Property Transmutation Agreement was sufficient and did change the property from separate to community, regardless of the “why” he made the change. Therefore, as the reader can see, estate planners and dissolution attorneys have more in common than one might think.
To learn more about the lawyers and staff at Santa Clarita, CA family law and divorce lawyers Reape-Rickett Law Firm, call their office at (661) 288-1000 for a consultation. The Reape-Rickett law firm serves Acton, Agua Dulce, Canyon Country, Castaic, LA, Los Angeles, Newhall, San Fernando, Saugus, Santa Clarita (SCV), Stevenson Ranch, Valencia, and greater Los Angeles County.