In California, the words “separate property” have a very specific legal meaning and understanding it matters, especially when planning what happens at death. Many families assume everything automatically goes to a spouse or that “the trust will handle it,” but separate property can change the outcome if it isn’t addressed clearly.
What is separate property? Generally, separate property is anything a person owns before marriage, plus anything they receive during marriage by gift or inheritance. Separate property can also include personal injury recoveries (in many cases) and anything purchased using separate funds, as long as it remains properly traced.
By contrast, most income earned during marriage and assets purchased with that income are considered community property.
Why separate property causes confusion. Separate property often becomes “mixed” over time. For example, someone may inherit money, deposit it into a joint account and later use it to help buy a home. Or a spouse may own a house before marriage, but later the couple uses community income to pay the mortgage. These situations can create disputes and, in some cases, require legal analysis to determine what portion is separate versus community.
How separate property passes at death. Separate property does not automatically go to a surviving spouse. Instead, it passes according to the deceased person’s estate plan or, if there is no plan, under California intestate succession laws. Here are the most common ways separate property is handled:
1) A will. A will can direct who receives separate property. However, a will does not avoid probate in California. If the separate property is titled in the deceased person’s name alone, it may still require a probate court process.
2) A revocable living trust. A trust is often the most efficient way to handle separate property, especially real estate. When separate property is properly transferred into a trust during life, it can usually be distributed after death without probate, with far more privacy and efficiency.
3) Beneficiary designations and joint ownership. Some assets pass outside a will or trust such as retirement accounts, life insurance and payable-on-death accounts. Separate property can also be held in joint tenancy, though that can create unintended consequences and should be done carefully.
A simple takeaway. Separate property is not “automatic” and it should be clearly identified and properly titled. A well-drafted trust (paired with correct funding) is often the cleanest way to ensure separate property goes where you intend without court involvement.
If you’re unsure whether an asset is separate property, it’s worth getting guidance before it becomes a conflict later.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues. This article is provided by your local estate planning attorney, Corina Colan. The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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