November 21, 2013

Community Property and Separate Property in a Will

Renoir's Bal du moulin de la Galette -
Musée d'Orsay - Paris, France

A person cannot give away more than they own. In other words, you cannot write a check that cannot be cashed. In terms of marital property, known as community property in California, at-death transfers are no different.

When a decedent is married prior to passing, his or her estate is divided into community and separate property portions. In short, community property is basically property acquired during marriage that was the result of marital labor such as wages from a job. Separate property is basically any property acquired before marriage and any property that was obtained via gift or inheritance. 

For example, Homer and Whitney were married when Homer passed away tragically in a hot air balloon accident in 2013. Homer's estate consisted solely of a $100k bank account which he used to deposit his paychecks and Renoir's Bal du moulin de la Galette which he received as a gift from his late uber-wealthy uncle. Suffice to say, Homer was a simple man. The bank account would be considered Homer's community property whereas the Renoir would be considered Homer's separate property.

In terms of distributing assets at death, California law says that the decedent's will may dispose of up to 1/2 of the community property and all of their separate property. Prob C §§100(a), 6101

From the above example, Homer is entitled to devise $50k to whomever he sees fits. Although in nearly every case, the deceased spouse will name the surviving spouse as their beneficiary. In regards to the separate property, Homer can bestow upon any lucky recipient the Renoir. Even if Homer devised the Renoir to somebody other than Whitney, she would not have the ability to contest the devise.   

In relationships where the spouses are on their first marriage, issues of devising more than the permissible share of the community property are seldom found. One would be very hard-pressed to find an example where the deceased spouse devised his or her share of the community property to somebody other than the surviving spouse. The rationale being is that if you died married, then you probably loved your spouse and thus wanted them to be the beneficiary of your estate. Call me crazy.

Conversely in blended relationships, i.e. marriages involving a second or third marriage, disposing of community property can be more problematic as the concern is that if the surviving spouse is named the beneficiary, the deceased spouse's estate might trickle down to a step-child as opposed to a biological child. The reason for this is because once a spouse dies, the community estate ends (Obviously the surviving spouse can re-marry but just go with me on this). The surviving spouse is then free to leave their estate to anybody. 

For instance, assume Homer had a child from a prior relationship, Sampson. Whitney despised Sampson and Whitney wrote her will which devised her estate to her brother Bill. Naturally Homer would want his estate to end up with Sampson instead of Bill. Hence, Homer writes his will to leave his portion of the community property, namely 1/2, to Sampson out of concern that Sampson will not receive anything when Whitney dies.