California is a community property state. “Community property” is basically defined as all wages, salary, etc. earned during marriage by either spouse and anything purchased with that money. (See the article on community property under “Miscellaneous Questions.”) If you receive a gift or an inheritance, it is considered your separate property and your spouse has no claim on it.
But here’s where the “careful” comes in.
Separate property can become so intertwined with community property that it loses its separate character and becomes community property. This is difficult to do with tangible property, such as a house, a car or your grandmother’s silver. But it can happen quite easily with a bank account, for instance.
Your grandmother’s silver is easily distinguished from the silver you and your spouse received as wedding gifts. Even if they’re stored in the same box, they can always be separated out. But money in a bank account isn’t so easily separated, since one dollar bill looks pretty much like every other dollar bill.
If I receive a $50,000.00 inheritance, keep it into a bank account in my name alone and don’t start depositing my paycheck into that account, it starts out as my separate property and will always be my separate property. Further, anything I buy with those separate-property funds will also be my separate property.
Even if I add my wife’s name to the account, that alone will not cause it to be transformed into community property. I probably did this for convenience, so she would have access to the money if we need it and I’m not able to go to the bank.
But if I put my inheritance into a joint account with my wife, we each deposit our paychecks into the account and pay our bills out of the account, the money will turn into community property in short order.
(Sometimes it is possible for an accountant to trace money in and money out and salvage a portion of my original inheritance, but I wouldn’t count on it.)
In brief (and realizing that this may cause more than a little bit of marital disharmony), if I want to preserve my inheritance in case of a future divorce, I won’t mix up “my” dollar bills with “our” dollar bills.
He won’t inherit it from you, unless you specifically want him to. California law reserves inheritance rights to blood relatives. In-laws do not inherit.
Let’s say your will leaves everything to your daughter, she dies before you do and you don’t get around to changing your will before you die. Her husband will not inherit your estate. Depending on the fact situation, it will more likely go to her children, if any, or to your other relatives. (See “If I die without a will,” above, under “Will Questions.”)
On the other hand, of course, if your daughter outlives you and inherits your estate, it is no longer yours to control. It is now part of her estate and she may leave it to her husband in her own will if she chooses.
Absent proper planning, the answer in many cases is – unfortunately – “yes.”
Second marriages and “blended” families present a particular estate-planning problem. Let’s suppose that Mom and Dad have simple wills that specify that all of their estate will go to the surviving spouse. Now, suppose that Mom dies and Dad inherits the entire estate. Dad now marries a widow with three children and the newlyweds go to their attorney to have a new set of wills drawn up.
The new wills might also say that the survivor inherits the entire estate and that when the survivor dies, the estate is to be distributed one-half to Dad’s children and one-half to the children of his second wife. Now Dad dies and his widow rushes off to her attorney to change her will, leaving everything to her own children.
Or maybe Dad – under pressure from the new wife or for other reasons of his own – has his will specify that if he is the surviving spouse, everything will go to his second wife’s children, rather than to his own.
Believe me: it happens.
But there are ways to prevent this outcome. While Mom was alive, she and Dad could have guarded against it, and after Mom’s death, Dad could have – had he so desired – prevented it.
Mom and Dad could have entered into a “contract to make a will,” whereby each of them promised that the survivor would leave his or her entire estate to their children. These contracts are enforceable by the court. In other words, had Mom and Dad had such a contract and Dad changed his will after Mom’s death, the children would be able to set aside Dad’s new will and have the old one enforced.
Or Mom and Dad could have had a revocable living trust, specifying that upon the death of the first spouse, only half of their estate would go outright to the surviving spouse. The other half might, for example, pay to the survivor all of its earned interest for his or her lifetime and upon the death of the surviving spouse, this half would go to the children. This half of the trust would become irrevocable on the death of the first spouse.
Dad would then be free to amend his half of the estate, if he wished. He could continue to leave it to his children, or to his new wife, or her children, or his church or his favorite charity. After all, half of the estate was his to do with as he wished.
Now let’s go back to the situation in which Mom and Dad had simple wills and Dad inherited everything. He and his new wife could also enter into a contract to make a will, specifying that neither spouse could change his or her will after the death of the first spouse. Each of the contractual wills could say where the total estate would go upon the death of the surviving spouse, and the contract would be enforceable, thus preventing the new wife from changing her will after Dad’s death.
Or Dad could do his own living trust, making whatever provisions he wished for his new wife and leaving the rest to his children. Or he and the new wife could have their own trust drawn up, with provisions for their respective children, and further providing that the trust became irrevocable upon the death of the first spouse.
These are the main ways in which Dad (or Mom and Dad) may protect his/their own children’s inheritance. However, if they don’t ask the proper questions and take the proper steps (and, yes, this does involve consulting with a qualified estate planning attorney), they run the risk that their children might receive nothing when the second parent dies.
The brief articles on this page are for informational purposes only. They are not, nor are they intended to be, legal advice. They do not, nor are they intended to, establish an attorney-client relationship. You should consult an attorney for individual advice regarding your specific situation.
Copyright©, 2009 – 2012, Steven C. Dimick