[0:01] Welcome to protecting your legacy with estate planning.
[0:06] Hello and welcome to protecting your legacy with estate planning with Adam Grant.
[0:11] Adam is the founding attorney at Stonewood Law Group PC in Encino, California.
[0:16] He helps families across Los Angeles, Orange, Riverside, Ventura, and San Bernardino counties
[0:22] build clear, comprehensive state plans that protect what matters and help avoid probate.
[0:29] I'm Chelsey and today we're talking about community property issues in California as state planning,
[0:35] where families commonly run into confusion, and why ownership matters more than many people realize.
[0:42] Welcome back Adam.
[0:43] Thank you again.
[0:44] Hey, what does community property refer to under California law?
[0:49] And why does it become such an important issue in a state planning?
[0:53] Yes, so community property is a huge deal in the state planning and especially in California.
[0:57] So California is a community property state.
[1:00] What does that mean?
[1:01] It means that any property acquired during the life of the marriage is split or owned equally in terms of interest.
[1:08] So if you own a piece of property and you acquire that during the life of the marriage,
[1:14] your respective of, you know, if it comes from your separate property or community property funds,
[1:19] and you buy that together, that is a community property asset.
[1:22] So you want to be careful as to what's separate property, which is what you can freely devise through your trust and your will,
[1:30] versus community property, which you can only devise up to your 50% interest.
[1:34] What misunderstandings do married couples most commonly have about what belongs to both spouses versus what remains separate property?
[1:43] Yeah, there's a general misconception that even though you use your separate property funds,
[1:49] for instance, to purchase something that it is yours.
[1:52] If you purchase that during the life of the marriage, a home and you contributed funds to that home and live in that home,
[1:58] it's very possible.
[1:59] A court is going to find that that's community property.
[2:01] And so what that means is when you go to sell that property and you believe that it's in your sole name,
[2:06] the court might not agree.
[2:07] And with that community property interest in the real property, you may only be able to devise up to 50% of that asset.
[2:15] So it's very important that assets that make its way into a will or trust maintain its character as separate or community property,
[2:22] and that you devise things correctly or transmutate them if you want it to become community property.
[2:28] How do inherited assets, premarital property, or commingled finances start creating problems later if they were never clearly documented or separated?
[2:38] So if they're not clearly documented or separated,
[2:41] it's very possible that what you believe to be a separate property asset or inheritance becomes commingled,
[2:47] and commingled assets then have community property interests.
[2:50] So commingling is when you have contributed funds from both spouses,
[2:55] and there is then when you have contributed assets from both spouses,
[3:01] and then there's an interest from both spouses in that asset.
[3:04] So the separate property that you may have acquired through inheritance from your parents when they passed,
[3:10] if you put that into the trust everyone's living in that asset and you and your husband are making the mortgage payments,
[3:15] that's going to be seen as community property asset.
[3:18] And so with that, you can only devise up to 50% of your interest,
[3:21] even though you may have contributed substantially or all of the funds purchased that asset outright.
[3:27] That also has the same implications with premarital agreements or transmutation agreements.
[3:32] So things that are agreed to on the side by a paper can maintain their characterization.
[3:38] If it's separate property, you can maintain its separate property character by putting it in the trust,
[3:43] ensuring that the funds are not commingled, you can do the same by transmutating property.
[3:48] You can put it into the trust and say this is mutually ours as co-community property.
[3:52] So that's another option you can do, but the paperwork and the paper trail will define how that property is characterized,
[3:59] unless it's a joint property and that property is contributed by both spouses,
[4:07] in which case the court will likely see it as a community property.
[4:10] Real estate seems to create a lot of confusion in California estate plans.
[4:15] What kind of issues come up most often when family homes or investment properties?
[4:20] Yeah, so oftentimes titling is the issue.
[4:23] Clients will forget to put correct title on the property,
[4:27] but as it relates to community property, one spouse again may take property as separate property,
[4:34] whether it's inherited or they purchase the property outright with their own funds,
[4:38] but the court will ultimately deem it to be a community property asset by the way both spouses are contributing to the asset,
[4:44] and it's managed, lived in and or used during the lifetime of the marriage.
[4:48] So it's very important to categorize and put a paper trail behind what assets are held, how,
[4:54] and not to commingle funds if you want to keep funds separately in the asset separate.
[4:59] How can community property issues affect what happens after someone passes away,
[5:04] especially if ownership paperwork and the estate plan are not fully aligned?
[5:09] Yeah, if they're not fully aligned and the person has passed away,
[5:12] then oftentimes what you have is an inconsistent distribution or wish of that person
[5:18] that doesn't follow their state plan.
[5:20] So I'll give you an example.
[5:21] If a person wanted to give that real property a separate property asset to their child,
[5:26] but they didn't understand that there was community property by the way of it being purchased
[5:31] during the lifetime of the marriage and commingle assets, then they might not be able to give the asset
[5:37] as intended to the person they wanted going to, instead there's a community property interest from the other spouse,
[5:43] and that's where it gets complicated.
[5:45] You will have to work out that community property interest before the home can go to the person that's intended to go to.
[5:50] Are these situations become even more complicated in second marriages or blended families
[5:56] where there may be children from prior relationships involved?
[6:00] Absolutely.
[6:01] This is where we see it most, and best course is to really take a look at your state plan documents,
[6:06] your premarital and post marital agreements, divorce decrees,
[6:09] to make sure they align with what you're trying to effectuate.
[6:13] So if you have a previous marriage and you want your kids from that previous marriage to obtain an asset under your trust,
[6:19] you want to be sure that asset is from the previous marriage, is not commingled with the current marriage.
[6:25] Title doesn't change to the current marriage.
[6:28] There are a lot of transmutations or mutations on this.
[6:31] There's a lot of various ways this can play out, and depending on how the other spouse claims of interest,
[6:36] there may be a prohibition, or there may be an interest that prevents you from selling it out right as it's intended to go by that that trust or that seller.
[6:45] Can you walk through a situation where assumptions about ownership or property rights created made your complications for a family later on?
[6:52] Yes, so people often assume that they have things in order or they've made the requisite changes without going back and checking things.
[6:58] If you have a blended marriage or you're on your second spouse, it's extremely important to go back and review these documents.
[7:05] One example is for instance, this client who we've been speaking about acquired a real estate property,
[7:12] but they acquired that during their first marriage with commingled funds.
[7:17] That would be an asset that they can't give out right, but ultimately that spouse bought out the 50% portion.
[7:24] When they went to sell it and brought it through their second marriage, they had title.
[7:29] They were able to do that because the community property interest was resolved, but we had to resolve that community property interest.
[7:35] With a previous marriage, you want to be sure that any interest held by that other spouse, there's also inheritance issues, but things are clearly devised to go to the people you want going to,
[7:45] and that any community property interests are addressed when you go into that second marriage.
[7:50] When you're helping a couple put together in a state plan, what kinds of conversations tend to uncover these issues before they become larger problems later?
[7:58] We have discussions about how the estate should be set up, and again, that's schedule A, we talked about in our last meeting, how that is to be aligned with what assets are held by the trust.
[8:08] When going through those assets, bank accounts, checking accounts, retirement accounts, we will see how things are held, and we will have the conversations about community property interest,
[8:18] things that are held perhaps in both of the spouse's name as joint tenants versus putting things in trust, and also how things should remain.
[8:26] If they do have separate property, they're bringing into the trust, whether it's from a prior marriage or prior to the marriage or an inheritance, clearly defining in the trust how that property is to remain separate property and ensuring that it's not a coming old asset.
[8:41] There are ways to ensure that what's put in the trust retains its character, and so going through the assets with the client to ensure that everything's properly titled is the biggest thing we do,
[8:51] and ensure that the client understands the consequences and has things properly in place and in the order for distribution to the people they want to go into.
[8:59] How often do families discover too late that maybe everyone involved had very different assumptions about who actually owned what?
[9:07] In my experience, and perhaps it's just how things get to me, it's almost always at the point where it's too late, and this is a frequent problem.
[9:15] Talking to your attorney, understanding how your accounts are titled, if you take the property out of the trust to refinance, or get a HELOC, putting it back in the trust, and then understanding how commingled funds can change the character of property.
[9:29] Having these discussions with the client helped them ensure that the property they put into the trust, or the property they obtain, retain their character if that's what they want to do, or they want to put it together and make it commingled, they can transmute the property.
[9:42] We would have those conversations about how that property should be held, who it's supposed to go to, and if there's not a community property interest involved, how we can clearly get it going to the people they want to go into.
[9:51] That's it for today's episode. Thank you so much for listening to today's episode of protecting your legacy with estate planning.
[9:58] If you have questions about community property, trust planning, or protecting your family's future in California, visit stonewoodlaw.com
[10:07] to learn more about Adam Grant and Stonewood Law Group PC. And don't forget to like, leave a review, and subscribe to the show so you don't miss the next episode.
[0:06] Hello and welcome to protecting your legacy with estate planning with Adam Grant.
[0:11] Adam is the founding attorney at Stonewood Law Group PC in Encino, California.
[0:16] He helps families across Los Angeles, Orange, Riverside, Ventura, and San Bernardino counties
[0:22] build clear, comprehensive state plans that protect what matters and help avoid probate.
[0:29] I'm Chelsey and today we're talking about community property issues in California as state planning,
[0:35] where families commonly run into confusion, and why ownership matters more than many people realize.
[0:42] Welcome back Adam.
[0:43] Thank you again.
[0:44] Hey, what does community property refer to under California law?
[0:49] And why does it become such an important issue in a state planning?
[0:53] Yes, so community property is a huge deal in the state planning and especially in California.
[0:57] So California is a community property state.
[1:00] What does that mean?
[1:01] It means that any property acquired during the life of the marriage is split or owned equally in terms of interest.
[1:08] So if you own a piece of property and you acquire that during the life of the marriage,
[1:14] your respective of, you know, if it comes from your separate property or community property funds,
[1:19] and you buy that together, that is a community property asset.
[1:22] So you want to be careful as to what's separate property, which is what you can freely devise through your trust and your will,
[1:30] versus community property, which you can only devise up to your 50% interest.
[1:34] What misunderstandings do married couples most commonly have about what belongs to both spouses versus what remains separate property?
[1:43] Yeah, there's a general misconception that even though you use your separate property funds,
[1:49] for instance, to purchase something that it is yours.
[1:52] If you purchase that during the life of the marriage, a home and you contributed funds to that home and live in that home,
[1:58] it's very possible.
[1:59] A court is going to find that that's community property.
[2:01] And so what that means is when you go to sell that property and you believe that it's in your sole name,
[2:06] the court might not agree.
[2:07] And with that community property interest in the real property, you may only be able to devise up to 50% of that asset.
[2:15] So it's very important that assets that make its way into a will or trust maintain its character as separate or community property,
[2:22] and that you devise things correctly or transmutate them if you want it to become community property.
[2:28] How do inherited assets, premarital property, or commingled finances start creating problems later if they were never clearly documented or separated?
[2:38] So if they're not clearly documented or separated,
[2:41] it's very possible that what you believe to be a separate property asset or inheritance becomes commingled,
[2:47] and commingled assets then have community property interests.
[2:50] So commingling is when you have contributed funds from both spouses,
[2:55] and there is then when you have contributed assets from both spouses,
[3:01] and then there's an interest from both spouses in that asset.
[3:04] So the separate property that you may have acquired through inheritance from your parents when they passed,
[3:10] if you put that into the trust everyone's living in that asset and you and your husband are making the mortgage payments,
[3:15] that's going to be seen as community property asset.
[3:18] And so with that, you can only devise up to 50% of your interest,
[3:21] even though you may have contributed substantially or all of the funds purchased that asset outright.
[3:27] That also has the same implications with premarital agreements or transmutation agreements.
[3:32] So things that are agreed to on the side by a paper can maintain their characterization.
[3:38] If it's separate property, you can maintain its separate property character by putting it in the trust,
[3:43] ensuring that the funds are not commingled, you can do the same by transmutating property.
[3:48] You can put it into the trust and say this is mutually ours as co-community property.
[3:52] So that's another option you can do, but the paperwork and the paper trail will define how that property is characterized,
[3:59] unless it's a joint property and that property is contributed by both spouses,
[4:07] in which case the court will likely see it as a community property.
[4:10] Real estate seems to create a lot of confusion in California estate plans.
[4:15] What kind of issues come up most often when family homes or investment properties?
[4:20] Yeah, so oftentimes titling is the issue.
[4:23] Clients will forget to put correct title on the property,
[4:27] but as it relates to community property, one spouse again may take property as separate property,
[4:34] whether it's inherited or they purchase the property outright with their own funds,
[4:38] but the court will ultimately deem it to be a community property asset by the way both spouses are contributing to the asset,
[4:44] and it's managed, lived in and or used during the lifetime of the marriage.
[4:48] So it's very important to categorize and put a paper trail behind what assets are held, how,
[4:54] and not to commingle funds if you want to keep funds separately in the asset separate.
[4:59] How can community property issues affect what happens after someone passes away,
[5:04] especially if ownership paperwork and the estate plan are not fully aligned?
[5:09] Yeah, if they're not fully aligned and the person has passed away,
[5:12] then oftentimes what you have is an inconsistent distribution or wish of that person
[5:18] that doesn't follow their state plan.
[5:20] So I'll give you an example.
[5:21] If a person wanted to give that real property a separate property asset to their child,
[5:26] but they didn't understand that there was community property by the way of it being purchased
[5:31] during the lifetime of the marriage and commingle assets, then they might not be able to give the asset
[5:37] as intended to the person they wanted going to, instead there's a community property interest from the other spouse,
[5:43] and that's where it gets complicated.
[5:45] You will have to work out that community property interest before the home can go to the person that's intended to go to.
[5:50] Are these situations become even more complicated in second marriages or blended families
[5:56] where there may be children from prior relationships involved?
[6:00] Absolutely.
[6:01] This is where we see it most, and best course is to really take a look at your state plan documents,
[6:06] your premarital and post marital agreements, divorce decrees,
[6:09] to make sure they align with what you're trying to effectuate.
[6:13] So if you have a previous marriage and you want your kids from that previous marriage to obtain an asset under your trust,
[6:19] you want to be sure that asset is from the previous marriage, is not commingled with the current marriage.
[6:25] Title doesn't change to the current marriage.
[6:28] There are a lot of transmutations or mutations on this.
[6:31] There's a lot of various ways this can play out, and depending on how the other spouse claims of interest,
[6:36] there may be a prohibition, or there may be an interest that prevents you from selling it out right as it's intended to go by that that trust or that seller.
[6:45] Can you walk through a situation where assumptions about ownership or property rights created made your complications for a family later on?
[6:52] Yes, so people often assume that they have things in order or they've made the requisite changes without going back and checking things.
[6:58] If you have a blended marriage or you're on your second spouse, it's extremely important to go back and review these documents.
[7:05] One example is for instance, this client who we've been speaking about acquired a real estate property,
[7:12] but they acquired that during their first marriage with commingled funds.
[7:17] That would be an asset that they can't give out right, but ultimately that spouse bought out the 50% portion.
[7:24] When they went to sell it and brought it through their second marriage, they had title.
[7:29] They were able to do that because the community property interest was resolved, but we had to resolve that community property interest.
[7:35] With a previous marriage, you want to be sure that any interest held by that other spouse, there's also inheritance issues, but things are clearly devised to go to the people you want going to,
[7:45] and that any community property interests are addressed when you go into that second marriage.
[7:50] When you're helping a couple put together in a state plan, what kinds of conversations tend to uncover these issues before they become larger problems later?
[7:58] We have discussions about how the estate should be set up, and again, that's schedule A, we talked about in our last meeting, how that is to be aligned with what assets are held by the trust.
[8:08] When going through those assets, bank accounts, checking accounts, retirement accounts, we will see how things are held, and we will have the conversations about community property interest,
[8:18] things that are held perhaps in both of the spouse's name as joint tenants versus putting things in trust, and also how things should remain.
[8:26] If they do have separate property, they're bringing into the trust, whether it's from a prior marriage or prior to the marriage or an inheritance, clearly defining in the trust how that property is to remain separate property and ensuring that it's not a coming old asset.
[8:41] There are ways to ensure that what's put in the trust retains its character, and so going through the assets with the client to ensure that everything's properly titled is the biggest thing we do,
[8:51] and ensure that the client understands the consequences and has things properly in place and in the order for distribution to the people they want to go into.
[8:59] How often do families discover too late that maybe everyone involved had very different assumptions about who actually owned what?
[9:07] In my experience, and perhaps it's just how things get to me, it's almost always at the point where it's too late, and this is a frequent problem.
[9:15] Talking to your attorney, understanding how your accounts are titled, if you take the property out of the trust to refinance, or get a HELOC, putting it back in the trust, and then understanding how commingled funds can change the character of property.
[9:29] Having these discussions with the client helped them ensure that the property they put into the trust, or the property they obtain, retain their character if that's what they want to do, or they want to put it together and make it commingled, they can transmute the property.
[9:42] We would have those conversations about how that property should be held, who it's supposed to go to, and if there's not a community property interest involved, how we can clearly get it going to the people they want to go into.
[9:51] That's it for today's episode. Thank you so much for listening to today's episode of protecting your legacy with estate planning.
[9:58] If you have questions about community property, trust planning, or protecting your family's future in California, visit stonewoodlaw.com
[10:07] to learn more about Adam Grant and Stonewood Law Group PC. And don't forget to like, leave a review, and subscribe to the show so you don't miss the next episode.
