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.

Rose

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 visitwww.scholarshare.com). 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

What is the easiest and inexpensive way of clearing title after one parent dies and leaves the other behind with no estate plan.

Dear Len & Rosie,

My mother died three years ago. My father is still alive. We are trying to upgrade the house. My father granted me the right to the property, but when I tried to apply for a loan, the title company told me that my mother still owns 1/3 of the property. The title company suggested that we have to do a probate since my mother died without a will. Is it necessary to do probate, since my father is still alive? and What will be the easiest and inexpensive way of clearing title?

Jose

Dear Jose,

You are in a fairly unusual situation. Most married couples buying propertytogether purchase their homes in both spouses’ names as joint tenants. When parents add their children to the title of their home, they usually title the property in joint tenancy. Joint tenancy is cheap and easy to deal with - all you would need to do to remove your mother’s name from the title to the home would be to sign and record an Affidavit of Death of Joint Tenant with a certified copy of your mother’s death certificate attached.

Since we do not have a copy of the deed to your parents’ home to review, it’s probably save to guess that the property was either titled in your parents’ names as community property, or maybe as a tenancy in common. Either way, your mother’s interest in the home belongs to her probate estate and is subject to probate.

A full probate shouldn’t be necessary. It’s almost certain that your parents’ home was their community property, as it was likely purchased with money they earned during their marriage. Since your mother died without a will, her husband shall inherit all of the community property by “intestate succession”, the law that says who gets what when someone dies without a will.

Instead of filing for probate, your father can hire a lawyer and file a Spousal Property Petition. Unless someone objects claiming that the home really wasn’t community property, the judge will grant the petition and issue an order transferring your mother’s interest in the home to your father. A Spousal Property Petition is much quicker, cheaper and easier than filing for probate. Your father can get a court order within a month of walking into the lawyer’s office, and even faster than that if necessary. Once you record the court’s order, you and your father will have the clear title necessary for the title company to close escrow on your loan.

After that, your father should review his own estate plan, if only so you may avoid the problems you are dealing with now a second time after your father passes away. He should either hold title with you as joint tenants, or he could create a revocable trust.

Len & Rosie