When you contemplate your estate plan, a primary goal within that plan is likely to ensure that your assets are passed down to beneficiaries of your choosing. Whether the assets you pass down are intended to help provide financially for the beneficiary or are family heirlooms that have been in the family for generations, you want to make sure that the assets remain with the beneficiary. California, however, is a community property state which can complicate ownership of assets if a beneficiary is married. The Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors discuss whether inherited property is community property in California.
What Is Community Property in California?
California is a community property state, meaning that both spouses have an equal ownership interest in most property earned or acquired during the marriage. Community property is all subject to division if the spouses later get divorced. If you plan to pass down valuable or important assets to a beneficiary who is married, you may understandably be concerned that the inheritance you leave to that beneficiary would be included in the division of assets during a divorce at some point in the future.
Is Inherited Property Considered Community Property in California?
Although California starts with the presumption that property acquired during the marriage is community property, there are several important exceptions. One of those is for “all property acquired by the person after marriage by gift, bequest, devise, or descent.” In other words, inherited property is not presumed to be community property in California. Unfortunately, the analysis does not stop there. While inherited assets are not considered to be community property in California, an inheritance can be co-mingled and become community property.
Imagine that you left your adult daughter Mary an inheritance of $1 million. Mary is married to Jack at the time she receives her $1 million inheritance. If Mary simply puts that money in a bank account and does not touch it during the course of her marriage, that inheritance will stay Mary’s separate property and will not be part of the division of assets in Mary and Jack’s divorce down the road.
If, however, Mary purchases real property (or something else of value) with the inheritance money, Mary might have a problem if community funds were available to purchase the property and Mary did not discuss that option with Jack prior to using her inheritance.
Mary might also have a problem if she deposits the $1 million into a bank account that includes community funds. At that point, Mary has co-mingled her inheritance. If the funds are only in the account for a short time or nothing is spent out of the account, it may be possible to identify what funds are separate and what funds are community property in a subsequent divorce. If, however, the funds are co-mingled and numerous expenditures occur from the account over a period of months or years, it becomes very difficult to distinguish Mary’s inheritance from community property.
Finally, if Mary received real property such as a vacation home, instead of cash she might also have a community property problem in a divorce if community funds are used to maintain the property, pay the mortgage, or otherwise co-mingled with the property.
As you can see, it is not always easy to keep an inheritance separate in community property states; however, an experienced estate planning attorney can explain what estate planning tools and strategies are available to help.
Contact Our Los Angeles Estate Planning Attorneys
For more information, please join us for an upcoming FREE event. If you have additional questions or concerns about whether inherited property is community property in California, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
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