In this episode of Absolute Trust Talk, managing attorney Kirsten Howe tackles one of the most common — and commonly overlooked — estate planning scenarios: what happens when one spouse inherits money, assets, or real estate after a joint trust is already in place. Kirsten breaks down the difference between separate and community property in California, explains why adding inherited assets to a joint trust doesn’t change their character but does affect who controls them, and walks through the two practical solutions her firm recommends. She also reveals a lesser-known complication: that even when a trust document grants one spouse sole trustee authority over a separate property account, the financial institution may not honor it, and why that matters more than most clients realize.
Time-stamped Show Notes:
0:00 Introduction
0:43 Kirsten kicks off today’s topic: what to do when one spouse inherits significant assets while the couple already has a joint trust in place.
1:30 A quick primer on California community property law — what qualifies as separate property, what doesn’t, and why it matters for this conversation.
2:20 The common scenario: a couple has a joint trust covering all their assets, then one spouse receives a big inheritance. What now?
3:05 Here’s what surprises most people: adding separate property to a joint trust doesn’t change its legal character. It’s still yours. But there’s a catch.
3:50 The catch: a joint trust has two co-trustees, and trust-held property typically requires both signatures — meaning your spouse now has a hand in decisions about your inheritance.
4:45 One solution many clients choose: a standalone separate property trust just for the inherited assets, where you’re the only trustee — fully in control, no co-signature required.
5:30 Did you know? You can title an inherited account within a joint trust as one spouse’s separate property — but whether your financial institution will honor that is a different question entirely.
6:10 The fine print: even if your trust document names you as the sole trustee of a specific account, your bank’s legal department may still require both spouses to sign.
6:55 The bottom line: before adding separate property to a joint trust, ask yourself two things — do you want full control, and what will your financial institution actually allow?
Transcript:
Hello and welcome to Absolute Trust Talk. I’m Kirsten Howe, and I’m the managing attorney at Absolute Trust Counsel, and this is our podcast. Welcome — we’re glad you’re here.
I’m creating another episode in my series about Estate Planning Misses. What I mean by that is mistakes, misunderstandings, and mishaps that happen to our clients in the world of estate planning — things we’ve seen, things we know, and things we’ve learned after many years of doing estate planning and trust administration. My goal is to help you benefit from our experience, look at things a little differently, and maybe do something differently in your own estate plan. I’m not here to educate you on the law — it’s more like giving you the inside scoop on what we see and what we think might work in a lot of situations.
Today, I’m going to be talking about separate property — just as background, not as a legal education point. There’s no quiz on this. We are in California, which is a community property state. Community property is anything you acquire while you are married, except for gifts and inheritances. Everything you had before you got married is separate property, and anything you receive during marriage as a gift or an inheritance is also separate property.
Here’s how this applies to today’s conversation: oftentimes, we have clients who have an estate plan together — a joint trust and all the other things: wills, powers of attorney, health care. If you’re a frequent listener, you could recite that list easily. They have a joint trust. They are both trustees of the trust. It owns their home, their bank accounts, their investment accounts — all of it. Then, all of a sudden, one of the spouses inherits a significant amount of money, assets, real estate, investment accounts — a big inheritance from their parents or some bachelor uncle. One spouse now has separate property, and they didn’t have that situation before. The question arises: what do I do here?
Of course, I’m a lawyer, so you already know my answer: it depends. What it depends on is what you want to do. The first, most obvious question is: if you pass away, do you want your spouse to have the benefit of this property? And if so, do you want to control your spouse’s access to it after you pass away? But setting that aside for a moment, here’s the more practical concern.
You can add separate property to a joint trust without changing its character. Character, meaning: is it separate or community? If you take your separate property and put it into a joint trust, it’s still separate property. It’s still yours, and you still control who inherits it after you pass away. That doesn’t change. However, when you add separate property to a joint trust, that trust has two co-trustees, and property owned by a trust typically requires the participation, decision-making, and signature of both co-trustees. You may not like that — or you may feel it’s not ideal. You may think: this is my inheritance. I want to make all the investment decisions. I don’t want to get my spouse’s consent or signature on everything. I just want to manage it. I’m going to leave it to my spouse when I die, but while I’m alive, I want to be in control.
One possible solution — and many of our clients go this route — is to create a separate property trust just to hold your inherited assets. That way, you can be the only trustee. You are completely in control. You make all the decisions, and you don’t need anyone else’s signature to get anything done. It’s simple, straightforward, and keeps things clean, because your separate property is in its own trust where there will never be any doubt about its character.
But what we’ve also seen some clients do is this: say you inherited an investment account. It’s held as your separate property within your joint trust, but the account has a slightly different title on it. It might say something like “The John and Mary Smith Trust, John Smith’s Separate Property.” How an account gets titled depends on the financial institution. Some institutions will do this — you can make an arrangement with them. You tell them: I want this titled as my separate property, and I want you to acknowledge that I’m the sole trustee of this account, that I can make all the decisions, and that my spouse’s signature is not required. Some financial institutions will agree to that.
Now, we can write all of that into the trust document itself. We can say John Smith is the sole trustee of this account. But it doesn’t matter what the document says if the financial institution you’re working with won’t honor it. They have their own legal department whose job is to protect them, and they may or may not go along with it. I do know it’s possible — there are institutions that will do this. But setting up a separate trust is the cleaner route, because any financial institution will clearly honor a separate trust. It does involve creating an additional trust, which some people prefer to avoid.
So here’s my advice: before you add your separate property to a joint trust — whether one that already exists or one you’re thinking about creating — think through these questions. Do I want to be in full control of this, or am I comfortable having my spouse as co-trustee? And if I do want full control, what will my financial institution say about that? Get the answers before you add the assets.
I hope this was helpful and that you learned something that might apply to your situation. Thank you so much for listening and watching. We love our listeners and viewers and appreciate all the years of support. If you like this podcast, please like it. If you really like it, subscribe — it helps us more than you know. I look forward to connecting with you next time.
Resources Related to This Episode:
- A Will is Not Enough – Securing Your Legacy with Estate Planning Life can change in an instant. A will is not enough to be prepared. Get free access to our actionable E-book Guidebook #1 and start protecting your legacy today. https://absolutetrustcounsel.com/guidebooks/
- Learn how to comfortably define gray areas and assess your unique needs to build a secure future now effortlessly. Check out Guidebook #2, Estate Planning Beyond the Basics, here > https://absolutetrustcounsel.com/guidebooks/
- Get our free introductory guide to the most used estate planning tool, family trusts, and understand how we plan to help protect your family. Guidebook #3: https://absolutetrustcounsel.com/guidebooks/
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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