Gifting your estate

Dear Len & Rosie,

My mother is thinking about giving most of her money away within the next year or two to her two children and many grandchildren. She has about $100,000, and does not own a home. Mother is especially concerned that my brother’s wife not get any of it. (don’t ask). If she gives a gift of money to her son is that considered separate property or community property? 


Dear Nancy,

The default rule is that everything a husband and wife acquires during their marriage is community property. Fortunately, a gift or inheritance is separate property. But that’s only half the battle. Your brother has to be careful to keep his separate property separate. He should keep the money in accounts that do not have his wife’s name on title.

Your brother may even want to put the money into accounts at completely different financial institutions where he and his wife keep their money today. With the popularity of online banking, it could be possible for your brother’s wife to access his separate property accounts through the Internet, just because they have already arranged for online access to their other accounts.

Also, your brother must never, ever, ever, put any money into his separate property accounts that comes from a community property source, such as his paycheck. That’s called commingling and will likely result in some of your brother’s pre-inheritance gift being counted as community property if he and his wife divorce. If he commingles community and separate property within the same account, the burden of proof would be on him to show what portion of the account should be his and his alone.

You may have to protect your brother from himself. He may not be strong enough to withstand his wife, so he could put her name on the accounts anyway. Your mother can prevent this from happening by putting your brother’s share of her gifted money into a an irrevocable trust. That way, the money can be spent on your brother and he won’t be able to give it to his wife.

If your mother gives away more than $14,000 to any one person this year, she must file a gift tax return with her income tax returns next year. But her unified credit protects the first $5,430,000 of her assets from gift and estate tax, so she will not have to pay any gift tax to the IRS.

But your mother should be concerned about Medi-Cal. She may be giving her money away because she is worried that she will wind up in a nursing home and have to spend her life savings on her care. If so, she should be very cautious. Giving away her savings in a lump sum gift would make her ineligible for Medi-Cal nursing home benefits for almost two years. If your mother is trying to qualify herself for Medi-Cal benefits if she needs nursing home care in the future, she should first talk to an Elder Law attorney who practices Medi-Cal planning.

Len & Rosie