Omitted Spouse

The marital status of a person occasionally changes over time. For example, a person could be married one year, divorced the next year and then re-marry the following year. With the change in marital status, there are estate planning implications that may arise. One such issue is the beneficial interest, if any, of a subsequent spouse in the other spouse's estate. The relevant law provides that "if a decedent fails to provide in a testamentary instrument for the decedent’s surviving spouse who married the decedent after the execution of all of the decedent’s testamentary instruments, the omitted spouse shall receive a share in the decedent’s estate" per CA law. Probate Code §21610. However, a surviving spouse does not automatically qualify as an omitted spouse.    

A recent unpublished appellate opinion centered on a surviving spouse's claim to be an omitted spouse.

Oswaldo Herrador, a widower, married Rose Herrador in 2015. Oswaldo had executed a marital trust with his prior spouse, Gloria Herrador, in 2010. The trust was funded with a fourplex in Daly City, CA and a residence in San Bruno, CA. Gloria passed away in 2010 and Oswaldo passed away in 2022. In 2023, Rose filed a petition requesting her share of Oswaldo’s estate as an omitted spouse. The petition alleged that Oswaldo “neglected to create and execute either a Trust or a Will to provide for Rose. Oswaldo also failed to provide for Rose otherwise, commensurate with her spousal share," by naming her as beneficiary "on any account or insurance policy, or granting her an interest in title to either of his two real properties located in San Mateo County."  

Oswaldo’s children filed an objection which “disputed that Rose was an omitted spouse since Oswaldo provided for her in a separate testamentary instrument, his "Last Will and Testament," which governed his assets in El Salvador and was subject to probate in El Salvador (El Salvador Will). It also alleged, inter alia, that Rose was not an omitted spouse because Oswaldo designated her as the sole beneficiary of his Wells Fargo Bank account."

“On April 15, 2024, the trial court held a hearing on the motion for summary adjudication. Afterward, the trial court granted the motion, ruling, Petitioner is not an omitted spouse having been named as a beneficiary under decedent Oswaldo Herrador's testamentary instrument, namely his last will and testament governing his assets in El Salvador, executed after his marriage to Petitioner."

Rose appealed the trial court’s decision and this decision was affirmed on appeal.

Herrador v. Herrador, San Mateo County Superior Court case no. 23-PR0-00365 

Interpleader in an Estate Case

A typical estate dispute will involve ownership of assets, i.e. which party is the true owner of the asset in question. For example, a spouse may claim that a bank account owned by their late spouse is the property of the surviving spouse. Conversely, the late spouse's child may claim that the bank account is actually owned by the child through a testamentary instrument. The result is that the financial institution will be proverbially trapped in the middle as each side will claim to be the true owner of the property. 

In response, a financial institution may, but is not required to, file an interpleader action to deposit the funds with the court and let the parties litigate the matter. 

A recent unpublished appellate decision involved this issue:

"On January 23, 2020, BofA answered Royals's petition and simultaneously filed a motion for interpleader and discharge under section 386.5. The interpleader motion disclosed that on receiving the TPO, BofA had frozen all of Lu's accounts and that, while the 9029 Account contained no funds, the aggregate balance of the other frozen accounts was $250,558.14. The interpleader motion asserted that BofA was simply a stakeholder, having no interest in the frozen funds, and that BofA wished to deposit the frozen funds with the court clerk. BofA took the position that it was subject to conflicting demands from the Adams Trust, on the one hand, and from Lu, on the other, to funds held in accounts bearing Lu's name.

Alleging that it could not determine which of these two competing claims was valid without exposing itself to potential liability to the disappointed claimant, BofA asked that the court grant its interpleader motion, to allow BofA to deposit the disputed funds with the clerk, and then to discharge BofA from further liability in the suit. In support of the motion, BofA submitted a declaration from an assistant vice president stating that it was "prepared to tender immediately the sum of $250,558.14, i.e. the funds currently frozen in the At-issue Accounts, with the Clerk of Court." BofA also sought an award of its costs and attorney fees under section 386.6, subdivision (a)." 

"On March 12, 2020, following a hearing, the court granted BofA's interpleader motion and entered an order directing BofA to deposit the frozen $250,558.14 with the court clerk and be discharged from the action. The order also awarded BofA $3,930 in fees and costs "which amount is to be withheld from the $250,558.14."

Royals et al. v. Lu, Contra Costa County Superior Court, case # MSP1901563

Community Property and Separate Property Trusts

California is a community property state for marital property purposes. This means that assets considered "community property" are equally owned by the spouses, i.e. each owns 50%. Conversely, assets considered "separate property" are owned 100% by the acquiring spouse.

Occasionally a married prospective client will call and ask about writing a trust for solely themselves. The crux is that while community property results in equal ownership, it does not allow for unilateral disposition unless one spouse is giving it to the other spouse. Smedberg v. Bevilockway, 7 Cal. App. 2d 578, 582 (1935). Simply stated, community property is considered indivisible.

The logical follow-up to this dilemma is to determine what is considered community and what is considered separate property. 

Ahhh, if only life was that easy. 

Determining the characterization of an asset is a labor-intensive chore. It is not as simple as saying if acquired during marriage such is community property or if acquired before marriage such is separate property. Rather, the date of acquisition, the manner of acquisition, the sources of funds of the acquisition, etc. needs to be ascertained to properly characterize the asset. 

Some might say that a transmutation agreement can eliminate the property characterization process because community and separate property can be definitively distilled into an agreement. See Family  Code § 850. That is, in a transmutation agreement the parties can agree to change the characterization of property from separate to community or vice versa. So if the parties have doubt about an asset being community or separate property because of a lack of documentation, they can agree in writing to alter the characterization to eliminate any doubt. However, a transmutation agreement will require the consent and understanding of both parties. Hence, a spouse wanting to do a trust unilaterally will still need the involvement of the other spouse if a transmutation agreement is sought. 

Furthermore, a transmutation agreement can be a legal quagmire if not properly completed. For example, an ex-wife incurred $120,000 in attorney fees to determine the validity of a transmutation agreement. The ex-wife and her ex-husband executed a transmutation agreement with a prominent law firm in San Jose. The transmutation agreement gave the ex-wife a community property interest in the ex-husband's previous separate property business interests. During the divorce proceeding, it was invalidated on the grounds that the ex-husband did not understand the full legal consequences of the agreement. Whoops. The ex-wife sued the law firm for malpractice but her complaint was dismissed for failure to timely file, i..e outside the statute of limitations.  All in all, a complete legal disaster.

Ultimately if a married person is seeking to do a trust unilaterally, they will find few, if any, attorneys willing to take the case given the consequences.          

Divorce and Estate Planning

Occasionally I have received phone calls from people who are contemplating divorce and would like to write a trust so that when they die, their future ex-spouse will not inherit their estate. If only life was that easy.....

The main problem is that there needs to be a judicial determination as to what of the marital estate is community property and what is separate property. 

A person can only devise what they legally own. An earth-shattering concept, I know. If an item is considered community property, e.g. a house, then one spouse may only unilaterally devise up to 50% of the home. If the spouse tries to devise more than 50% of the home, the other spouse can validly object. 

Conversely, a spouse is free to devise all of their separate property as they see fit. If the marital home is found to be separate property, then the spouse may leave the house to whomever they please and the other spouse cannot object. 

When making property characterizations, dates are of optimal importance. For example, prior to being married, any property acquired would be the acquiring spouse's separate property. See Family Code § 770. During marriage and subject to certain exceptions, property acquired then is considered community property. See Family Code § 760. Following the "date of separation" any property acquired after that is considered the acquiring spouse's separate property. See Family Code § 771. In short, there are three phases: (1) pre-marriage, (2) marriage and (3) post-separation.

The following hypothetical illustrates the different stages of property acquisition.

Hal and Wendy began dating in 2012. Hal was reluctant to marry Wendy because Wendy's parents did not approve of Hal's occupation, a medicinal marijuana dispensary owner. In late 2012, Hal purchased in his name alone an investment property, a duplex, in Santa Cruz, CA. Eventually Hal proposed to Wendy and the two eloped on January 1, 2013 in California. Following their secret marriage, the newlyweds jointly purchased a condo in San Francisco, CA. Hal also used his earnings at the time to pay the duplex's mortgage.  When recreational marijuana use became legal in Colorado on January 1, 2014, due to passage of Amendment 64, Hal stated his intentions to divorce Wendy and move there. So on January 2, 2014, Hal packed all of his belongings and moved to Boulder, CO permanently. Wendy then filed for divorce in San Francisco County. Wendy subsequently drowned her sorrows by buying thousands of dollars in jewelry. The divorce was finalized in summer 2014.

For characterization purposes, the Santa Cruz duplex is both separate property, as it was purchased before marriage, and community property as well, since Hal used marital wages to reduce the mortgage. See Marriage of Moore (1980) 28 C3d 366, 371/ Marriage of Marsden (1982) 130 CA3d 426, 439. The San Francisco condo is community property because it was purchased during marriage. The jewelry is Wendy's separate property because it was acquired after the date of separation.         

For estate planning purposes, Hal can only unilaterally devise a fraction of the Santa Cruz condo. Similarly, Hal and Wendy can each only unilaterally devise a fraction of the San Francisco condo. However, Wendy can do as she pleases with the jewelry.

Transmutation - Community Property & Separate Property

When a married couple desires to write an estate plan, one of the first questions I pose, in non-legalese of course, is what constitutes community and what constitutes separate property from the marital estate. 

The reason for this question is because each spouse may devise up to 50% of the community property and 100% of their separate property in their estate plan. For example, if a home is purchased during marriage from the wages of both spouses, such would be considered community property. Each spouse may then devise up to 50% of the home to whomever they choose, including their spouse obviously.

Clients often ask if they can change the characterization of property. The answer to this question is yes. California law expressly authorizes a couple to change the characterization of property. Family Code §§ 850-853. The legal term for this is "transmutation."  

Per Family Code § 850, there are 3 types of transmutations:

(a) Transmute community property to separate property of either spouse. 

(b) Transmute separate property of either spouse to community property.

(c) Transmute separate property of one spouse to separate property of the other spouse. 

The most common transmutation is (b). In many long-term marriages, the spouse with the separate property is often agreeable to a transmutation given the strength of the marriage. From personal experience, I have never seen a transmutation involving (a) or (c).  

In order to transmute property there needs to be an express declaration, made in writing, that includes “language which expressly states that the characterization or ownership of the property is being changed.” Family Code § 852/Estate of MacDonald (1990) 51 C3d 262, 272. There is no particular verbiage that needs to be used for a transmutation. Id. at 273. Furthermore, the writing itself must establish a transmutation, thereby no outside evidence may be taken into account. Marriage of Benson (2005) 36 C4th 1096. Hence, a spouse claiming a transmutation needs to have something akin to a "smoking gun." 

A practical approach is to use the word "transmutation" and reference Family Code § 852 so that any reader of the document knows the clear intent behind the document. 

As mentioned, the characterization of marital property is especially crucial when devising an estate plan. If a spouse received a house as an inheritance from their parent, they are free to devise the house to whoever they want. Of note, a gift received during marriage is considered separate property despite the fact that it was acquired during marriage. The other spouse has no right to object to this. The acquiring spouse could give the house to their spouse, their neighbor, their co-worker, Mickey Mouse, etc. Conversely, if the acquiring spouse decides to transmute the house from separate to community property, then the acquiring spouse may only devise 50% of the house. If the acquiring spouse decides to devise 100% of the house to their neighbor, the other spouse can validly object to this transfer.

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. 

Fiduciary Duties

A trustee is a fiduciary of a beneficiary. As such, the fiduciary owes the beneficiary various duties. Initially, when a trustee initially undertakes their role to administer a trust, they owe the beneficiaries a duty to review the trust terms. Estate of Gilmaker (1964) 226 CA2d 658. As stated in Gilmaker, "one in whom trust is placed is duty bound to exercise reasonable diligence for the purpose of ascertaining the nature and extent of his obligations and to be faithful in the performance thereof." Thereby the duty to review the trust terms has 2 arguably components. First, the trustee must read the trust document. Second, the trustee must understand what the trust document says. The focus of this post is on the second aspect, i.e. the duty to understand the trust terms.

Many terms used in a trust have specific legal meaning, e.g. "trustee", "fiduciary duty", "reasonable compensation" "community property", "separate property", "life estate", etc. It is crucial that a trustee understand these terms or retain counsel to assist them in understanding it. The trust will often utilize these legal terms in key provisions of the trust. A trustee risks significant exposure to liability, i.e. a lawsuit, if they fail to correctly comprehend these legal terms.

Assume John Doe and Jane Doe create a revocable trust and both name themselves as trustees. During the marriage, John inherits a small farm in Hollister, CA from his rich late uncle, Daniele de Medici. The revocable trust says that upon John's death, his share of the community property is to be allocated to Jane and all of his separate property is to be donated to the local conservation group. John then predeceases Jane because of cancer. Jane is not a lawyer and has no idea what distinguishes John's community property from his separate property, despite watching the People's Court many times. She decides to allocate all of the marital assets to herself because she believes that since everything he owned was acquired during marriage, such constitutes community property. While Jane's presumption is understandable, the presumption in California is that assets acquired during marriage are presumed community property, she is in fact wrong because property acquired via inheritance is considered a person's separate property, regardless if acquired during marriage. This small farm is thus correctly characterized as John's separate property. 

When the local conservation group hears of John's passing, they inquire with Jane if any devise is coming its way. Jane tells them that all of John's property is community and in turn it is entitled to nothing. Undeterred, the local conservation group hires an attorney to investigate Jane's findings given her lack of legal acumen. The attorney tells them that the farm is actually John's separate property because he acquired it via inheritance which trumps the fact that it was acquired during marriage. The local conservation group then sues Jane for breach of fiduciary duty as she failed to follow the terms of the trust, i.e. she did not distribute the farm to the local animal shelter. Jane loses her case because her legal knowledge was derived from watching the People's Court, so naturally she was mystified when characterizing John's property and erroneously characterized it.      

Common-law Marriage in California

Many states have what is called common-law marriage. For reference, a common-law marriage is where two individuals hold themselves out to the public as if they were married for a specified amount of time despite the fact that they never went through the formal marriage proposal, namely the acquisition of a marriage license.

However, the state of  California does not recognize common-law marriage.

The reason why this is significant is because California is a community property state. This means that marital assets are owned equally between the spouses. For example, husband earned $1,000 a week as a librarian, whereby his wife would be entitled to $500 of that paycheck. Since a common law marriage is not recognized under California law, a common law wife would not be afforded the same protections as a regular wife or spouse.

Still, it should be noted that a putative spouse is entitled to his or her share of quasi-marital property. See Prob C §§6500-6615; Estate of Hafner (1986) 184 CA3d 1371. A putative spouse is somebody who in good faith entered into a marital relationship with another person who was ineligible to marry. A putative spouse commonly arises where the ineligible spouse was previously married and had never legally dissolved the marriage. 

Community Property in California

Before a married couple can make a determination as to distributing their estate via a trust or will, each spouse should consider California’s law on property characterization. These laws impose limitations on the transfer of marital property. 

This area of law is principally governed by the legal term “community property.” 

Even though community property is a term synonymous with divorce, community property also plays a significant role in estate planning as well. The following are some common questions that pertain to community property.

1. What is community property?

California law defines community property as all property acquired by a California domiciliary during marriage that is not specified by statute to be separate property. Fam C §760.

2. What is separate property?

California law defines separate property as all property owned before marriage and all property acquired during marriage that is acquired by gift or inheritance. Fam C §§770(a)(1)-(2).

3. Can I alter the characterization of property during marriage?

Yes, a spouse is free to change the characterization of property during marriage from community to separate, separate to community or separate of one spouse to separate of another. Fam C § 850. The term used for this process is “transmutation.” A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected." Fam C § 852. The written instrument aspect only applies to transmutations effected after 1984. Fam C § 852(e).

For example, Jack purchased a home in Carmel, CA as a single man in 1982. Then in 1983, Jack married Jill. Later in 1983, Jack orally declared to Jill that the Carmel house was now their community property. Had Jack tried to orally transmute the property in 1989, this would not suffice. Instead, Jack could use a deed from himself to Jill and himself to transmute the property from his separate to community property. Estate of MacDonald (1990) 51 C3d 262.

4. How does a prenuptial agreement affect community property law?

A prenuptial agreement can have a sweeping effect on the characterization of marital property. For instance, in 1987, Barry Bonds famously entered into a prenuptial agreement with his first wife Sun Bonds where each party waived any interest in the earnings and acquisitions of the other party during marriage. The enforceability of this prenuptial agreement was ultimately scrutinized by the California Supreme Court which upheld it, sparking a change in California’s prenuptial agreement laws by the California legislature. Marriage of Bonds (2000) 24 C4th 1, 99 CR2d 252.

5. Does community property encompass real and personal property?

Yes, as defined in the Family Code, “property" includes both real and personal property. Fam C §113. Thus community property law applies to the martial home just as much as it does to a diamond ring.

6. I purchased a home before marriage, is that community property?

A home purchased before marriage will probably be characterized as both community and separate property. The home is considered partially community property because it was purchased prior to marriage. Conversely, the property is partially separate if the mortgage payments were made via community earnings such as employment wages. Marriage of Moore (1980) 28 C3d 366.

7. I owned a business prior to marriage and continue to operate it, is that community property?

A business brought into the marriage and continued thereafter, will generally be considered both community and separate property. The reason for this is because the business was brought into the marriage, separate property, but marital effort will likely be expended on it, community property. Just as with a home purchased before marriage, there is an arithmetic formula for determining the community and separate property interest in the business. Van Camp v Van Camp (1921) 53 CA 17, 199 P 885; Pereira v Pereira (1909) 156 C 1, 103 P 488.

8. Is community property the norm in the United States?

No, community property is the atypical marital property law in the United States. The community property jurisdictions are California, Arizona, Louisiana, Nevada, New Mexico, Texas, Washington, Idaho and Wisconsin. Alaska has an optional community property system. Community property is based off of Spanish law in case you are trying out for Jeopardy.

9. What are some examples of community and separate property then?

Jack and Jill were married in Solvang, California in October 1990. Jack was employed by the County of San Luis Obispo as a civil engineer. Jack’s paycheck would be considered community property. Jill inherited a sewing business from her Aunt Betsy in 1991 and took over operations immediately thereafter. The sewing business would be considered Jill’s separate property, although the profits earned from the business would be considered community property because Jill had actively participated in the business. In 1995, Jack inherited Exxon Mobil stock from his late father. The stock and the dividends from the stock would be considered separate property.

Prior to the marriage, Jack purchased a home which the couple now lived in. The couple used their salaries to make the mortgage payments. The house would be considered a mixture of community and separate property.

10. How does community and separate property relate to estate planning?

Generally speaking, each spouse may give away up to 50% of the couple’s community property, 100% of their separate property and 0% of the other spouse’s separate property. For example, assume that Jack and Jill sole assets were a $1M home purchased after marriage, $200,000 in AT&T stock which Jack inherited and $300,000 in cash savings which Jill received as a gift. Jill could include in her trust or will, half of the home, the entire savings account and none of Jack’s stock.

At first blush, the relationship between community property and estate planning is critically important because a person cannot give away something which they do not own. However, most couples usually leave their entire estate to the surviving spouse and then to their children. Thus, this blunts the importance of understanding the nuances of community property law. The cases in which community property plays a large role in estate planning involves blended families. Since a blended family might have children from multiple marriages, it is unlikely that a spouse would want to leave anything to a non-biological child. Consequently, the spouses would need to ascertain each asset’s community or separate property status in order to properly distribute their estate. 

Last Will and Testament

Here are some common questions that relate to a last will and testament. 

1. What happens if I die without a will?

If a person dies without a will they are said to die intestate. The decedent’s estate is then allocated to their next of kin whoever that may be. If the decedent did not have any relatives or the decedent’s relatives could not be found, then the estate would escheat to the State of California.

2. Where should a will be stored?

A will may be stored in whatever location the person sees fit. For example, a will can be stored with the drafting attorney for safekeeping, although there are liability concerns for the attorney. Prob C §§ 700-735. Additionally, a will can be stored in a secure place such as a safety deposit box, safe or vault. Most of my clients have told me that they have stored their will at their home in a filing cabinet.

3. Would another state recognize a California will for probate?

I do not know because I am licensed to practice in California only. You would need to discuss this with an attorney licensed in that particular state.

4. What are the types of gifts that a testator may give?

There are 6 types of gifts that a testator may give. Prob C § 21117.

a. A specific gift is a gift of a particular item. For example, “I give my Omega DeVille Co-Axial Chronometer to Colin Locker.” (I have owned this type of watch since 2004 and highly recommend it).
b. A general gift is a gift from the general estate that does not give specific property. For example, “I give 10,000 shares of Exxon Mobil common stock to Blaine Ponder.”
c. A demonstrative gift designates a particular fund or asset from which the gift is to be made. For example, "I give the sum of $5000 to Marcel Rudolph to be paid from my Star One Credit Union account.”
d. A general pecuniary gift is a gift that is expressly stated either as a fixed dollar amount or as a dollar amount determinable by the provisions of the will. For example, "I give the sum of $25,000 to Patrick Kapernick."
e. An annuity gift is a general pecuniary gift that is payable periodically. For example, "I give the sum of $500 per month to Christian Culliver for the rest of his life."
f. A residuary gift is a gift of all that remains after all specific and general gifts are allocated. For example, "I give the residue of my estate to Eleanor Easley."

5. Can I disinherit my relatives in a will?

Yes, a Californian is entitled to disinherit everybody, except, if applicable, their spouse. In the case of a spouse, the testator may only give away ½ of the couple’s community property but may give away all of the testator’s separate property. If so desired, the following individuals should be specifically disinherited:

• A child of the testator born or adopted after the will was executed (Prob C §§21620-21621);
• A child omitted because the testator mistakenly believed the child to be deceased (Prob C §21622);
• A child of whose birth the testator was unaware (Prob C §21622); or
• A spouse who married the testator after the execution of the will (Prob C §21610).

California does not have forced heirship laws such as France, Germany, Switzerland and Japan. These laws limit a testator’s right to dispose of their estate by allowing the testator’s heirs to receive an inheritance regardless of the testator’s wishes.

6. Are wills public documents?

Yes, a will is a document that is open to public inspection provided that a will is written and it is appropriately lodged with the local probate court. Prob C §8200. 

7. Is a photocopied will admissible to probate court?

No, California law requires that an original will be executed in order to be accepted into probate. Therefore, a photocopied will is insufficient for probate purposes.

8. How much does an attorney charge to write a will?

The attorney fees I have seen charged for a will range from $400 - $800. Obviously this sample is not irrefutably representative of attorney fees for writing a will in California. Rather this sample is derived from personal experience.

9. Can I just buy a will online?

Yes, you are free to purchase a will online. I would never recommend anybody to do so however. The reason being is that these wills are cookie-cutter templates so you have to hope that your situation fits within the cookie-cutter template of the online will.

10. Do I need to write a will?

No, there is no legal requirement for writing a will. In particular, studies have shown that a majority of Americans have not written a will. Not writing a will is not necessarily disastrous because many assets can distributed through beneficiary designation whereby the problems associated for not having a will has largely been mitigated. Generally speaking, however, if a person has assets of over say $10,000, then writing a will would be recommended. 

Divorce and Community Property

When two people divorce, or legally speaking dissolve their marriage, there are serious consequences for their estate plans, assuming they have one.

For illustrative purposes, assume that Harry and Wendy married in 1985 and divorced in 2010. During their marriage, the couple had two children, Samuel, born in 1988, and Donna, born in 1990. During the course of their marriage, Harry and Wendy executed various estate planning documents. 

For example in 1995, Harry executed a will in which he bequeathed his Monet oil painting to Wendy as the primary beneficiary and his brother Bob as the alternate beneficiary. Furthermore, Harry inherited some money from a distant heir and deposited the money into a bank account in his name alone and made Wendy the pay-on-death primary beneficiary and Samuel the pay-on-death secondary beneficiary. Moreover, Harry and Wendy owned their home as joint tenants and never changed the title even after the divorce. In 2010 Harry and Wendy sadly divorced, and then in 2011 Harry passed away.

Will

Generally speaking, California law says that upon divorce, all provisions in a will that benefit a former spouse are revoked and the will is interpreted as though the former spouse had predeceased the testator and hence are not entitled to inherit from their former spouse. Prob C § 6122. 

Here, since Harry had divorced Wendy, California law says that Wendy died before Harry (just ignore reality and embrace the legal system for a moment) and thereby Harry’s brother Bob would be entitled to the Monet because Bob survived Harry.

Bank Account

Generally speaking, California law invalidates a nonprobate transfer (which is what a P.O.D. account is) to a former spouse. Prob C §5600(a). Here Harry named Wendy as the P.O.D. beneficiary but later divorced her and thus Prob C §5600(a) would apply, whereby Wendy would not receive any proceeds from the bank account and instead Samuel would.

Home (Joint Tenancy)

Generally speaking, California law says that a joint tenancy between the decedent (the person who died) and a former spouse is severed if the former spouse is not the decedent’s surviving spouse at the time of death. Prob C § 5601. 

This is particularly important because many couples own their homes as joint tenants. For instance, roughly 3 out of every 4 deeds I see from clients who are couples are titled as joint tenants. Regardless, upon the death of one joint tenant, the surviving joint tenant automatically inherits the deceased joint tenant’s interest regardless of what a will or revocable trust dictates. Yet here, because Wendy was not Harry’s spouse at the time of his death, Wendy would not be entitled to inherit Harry’s interest in the property as the surviving owner, since their divorce severed the joint tenancy between the two and made them tenants in common. Consequently, unlike joint tenancy, a tenant in common does not automatically inherit the interest of a deceased tenant in common. So Harry’s heirs would need to go through probate in order to inherit Harry’s half of the property. 

Gift Tax Law

In a previous post, I discussed the Estate Tax and the nuances behind it. Another one of the transfer taxes is Gift Tax. Here are some questions commonly posed in regards to Gift Tax. 

1. What is Gift Tax 

The Gift Tax is a transfer tax imposed by law where a person, the donor, gives the recipient, the donee, an item of property free of consideration. In IRS speak, Gift Tax is imposed on lifetime transfers of property for less than adequate and full consideration in money or money's worth. IRC §§2501(a), 2512(b). For example, if I gave my 325i BMW to my cousin Bob for free, this would constitute a gift and Gift Tax would follow. 

2. What gifts are always excluded from Gift Tax? 

Contributions made for the following items, regardless of the contribution amount, are exempt from Gift Tax: medical expenses, educational expenses, charitable donations and gifts between spouses who are U.S. citizens. IRC §§2503(e); 2522(a); 2523(a). 

3. Who pays Gift Tax? 

Surprisingly the donor pays Gift Tax rather than the donee. IRC §2502(c); Treas Reg §25.2511-2(a). For instance, if Donald gave Hugo a $20,000 Rolex watch as a gift, then Donald would be liable for paying Gift Tax. 

4. What is the annual exclusion amount? 

The annual exclusion amount represents the figure at which a donor may avoid Gift Tax liability if they gift property for less than or equal to the annual exclusion amount.

In case you are wondering, the annual exclusion amount for 2011 is $13,000. IRC §2503(b). Spouses can gift up to $26,000 to one individual because California is a community property state.

The annual exclusion amount is also not cumulative. Thus, if a donor uses less than their annual exclusion amount for one year, they cannot transfer the surplus to the next.  For example, if Donald gave Hugo $10,000 in 2011, he could not give Hugo $16,000 (assuming the annual exclusion amount stays the same) in 2012. 

5. How does Gift Tax harmonize with estate planning? 

In light of the annual exclusion amount, some clients utilize Crummey Trusts for their children while other clients create irrevocable life insurance trusts (“ILITs”). 

6. What prompted Gift Tax? 

The Gift Tax was enacted by the federal government to prevent a person from giving away all of their property to avoid the Estate Tax. Since the Estate Tax is imposed only at death, a person could presumably drain their estate through gifting over time to prevent its application. Not surprisingly, the federal government closed this loophole in 1932 when it instituted Gift Tax. 

7. What is the Gift Tax rate? 

The Gift Tax rate starts at 18% and caps out at 35%. IRC §2502(a)(2). 

8. What is the legal definition of a gift? 

The following link explains this well. 

9. Is there a federal Gift Tax? 

Yes, there is a federal Gift Tax. All that is mentioned in this post relates to the federal Gift Tax. 

10. Is there a California Gift Tax? 

No, the State of California does not impose Gift Tax. The California Gift Tax was repealed by the California electorate via ballot proposition on June 8, 1982. Rev & T C §§13301-14302. 

11. Is inheritance considered a gift? 

Inheritance is not considered a gift in the strict legal sense. While in substance inheritance is very much like a gift in that you did nothing to earn the property, inheritance is subject to the Estate Tax not the Gift Tax. 

12. Who can I give gifts to? 

Anybody is eligible to receive a gift on your behalf. Furthermore, there is no limit on the number of donees that a donor may benefit. For example, if a donor had $130,000, he or she could gift $13,000 to ten different individuals absent Gift Tax liability. 

13. Is extending a loan to a relative a gift? 

Yes, provided you extend to the borrower-relative a below market interest rate. Federal law stipulates the minimum interest rates that must be used between a lender (you) and a borrower (relative) and lays out the income and Gift Tax consequences if the loan incorporates an interest rate below the required minimum rate of interest. IRC §7872. 

14. Can I gift services? 

No, Gift Tax applies to the transfer of property, not to services. 

15. How do you value gifts? 

A gift is valued at its “fair market value” as of the date of the gift. IRC §2512(a). Fair market value is defined as "the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts." Treas Reg §25.2512-1.