Protecting your inheritance

Dear Len & Rosie,

I am a married woman, and I have a trust with my husband. Years ago, my mother passed away and left me an inheritance, which included $50,000 that I earmarked in an account in my name for the college education of my two grandchildren. The gift has grown to $72,000. I would like to reinvest this money in something that will give me a higher rate of return. Can I do this without affecting our revocable trust or my husband’s community property? I do not trust my husband with this money. He does not like my family and would either spend the money or give it to his children if he gets his hands on it.


Dear Rose,

You can do anything you want with your money. Normally everything that you acquire during your marriage is community property. Most people who have never been divorced still think in terms of “his” or “her” paycheck - this is wrong. Our community property system recognizes that the contributions of the spouse at home are just as important to the marriage as the contributions of the breadwinner. You own half of your husband’s earnings and he owns half of yours unless you signed a prenuptial agreement that says otherwise.

Anything you receive as a gift or an inheritance, and anything you acquired prior to your marriage is your separate property. That means the money you inherited from your mother is yours to do with as you please. You should probably take your money to a good broker or financial advisor for advice on how to invest it. If you have your separate property at an entirely different financial institution from your community assets, it will be easier for you to keep your separate property separate.

You should be careful not to accidentally turn your separate property inheritance into community property. Do not put your husband’s name on the title to the account. Keep the money in only your name and social security number. You could put the money into your revocable trust but only if your lawyer says it’s OK. Some trusts created for married couples state that everything added to the trust becomes community property. But we think that you should keep the money out of your trust because it’s cleaner that way. If you die first, your husband will be in charge of your trust, and no one will be looking over his shoulder. Who knows what he will do?

You can put the money into pay-on-death accounts with your grandchildren as beneficiaries, or even in a tax-deferred college fund with the State of California’s Scholar Share program (call 800-544-5428 or Your generosity could affect your grandchildren’s eligibility for scholarships, student loans and tuition assistance, so you should probably discuss this with your children first.

Once the account is set up, do not deposit your earnings or retirement income into that account, because that income or a portion of it may be community property. When you mix community property with separate property, it’s called “commingling” and you want to avoid this at all costs. In the event of a divorce or a lawsuit after you or your husband dies, the burden of proof would be against you to show how much money in the account is actually separate property. So keep it separate.

Len & Rosie