In this episode of Absolute Trust Talk, host Kirsten Howe is joined by the accomplished Ruth Koller Burke, Partner at Koller Herlihy LLP, whose 25+ years of experience span estate planning, trust administration, and probate litigation. Ruth’s dual expertise as both an estate planner and litigator—gained through years of representing Fortune 500 companies and managing high-stakes family dynamics—brings an invaluable perspective to this discussion.
Together, Kirsten and Ruth dive deep into the complexities of community and separate property in estate planning. From clarifying what distinguishes assets owned before marriage from those accumulated together, to understanding the role of trusts and navigating pre- and post-nuptial agreements, they leave no stone unturned. Whether you’re planning for a first marriage, a blended family, or any unique scenario, this episode offers actionable advice to help you safeguard your legacy and avoid future complications.
Time-stamped Show Notes:
0:00 Introduction
1:28 Meet Ruth Koller Burke and learn how her dual expertise as an estate planner and litigator provides unique advantages for estate planning clients.
3:15 What’s the difference between community and separate property? Ruth and Kirsten explain these terms and why aligning estate planning with prenuptial or postnuptial agreements is critical.
5:20 How do prenuptial and postnuptial agreements influence estate planning? Get expert insights into how estate planners approach these agreements.
8:40 Second marriages and commingling assets can complicate estate planning—hear a real-world example of how to handle these situations effectively.
10:28 Should married couples have separate trusts, a community trust, or a mix? Ruth and Kirsten delve into this key question and offer tailored solutions.
13:12 Protecting separate property from being unintentionally commingled is crucial—press play for practical tips on keeping assets clearly defined.
16:38 Thank you, Ruth, for sharing your insights! Don’t miss the next episode, where Kirsten and Ruth dive into estate planning horror stories and how to avoid them.
Get in Touch with Ruth!
Koller Herlihy LLP
Email: rkoller@khtrustlaw.com
Phone: (925) 954-1268
Transcript:
Hello and welcome to Absolute Trust Talk. This is our podcast, our live streaming on social media podcast at Absolute Trust Counsel, and we’re very glad you’re here to join us.
As our listeners are probably at least vaguely aware, California is a community property state. That means that there are laws that tell us, for instance, what someone can and can’t do with their community property and what happens in the event of a divorce or a death with community property and separate property. As you can imagine, when someone has community property and separate property, we have to plan their estate plan with all that in mind. You can only plan for what is yours.
Married couples need to understand what community is and what is separate and how to fit this all together in an estate plan. We will tackle this topic today in two episodes. There’s just a lot to talk about.
In the first part, we’re going to talk about what community property is, what separate property is, and what the planning considerations are that we have to keep in mind when we’re working with families who have both.
In the second episode, I hope we’ll discuss some of our planning failures—some of our horror stories—the undesired results we’ve seen and how we fix them.
Today, I am very fortunate to have one of my very experienced, very knowledgeable estate planning colleagues, who is really fun, here to talk with me about this topic and how we plan with our clients who have both community and separate property.
My guest is Ruth Koller-Burke, a partner at Koller Herlihy LLP, which is here in Walnut Creek. Ruth has more than 25 years of experience and provides legal services related to estate planning, trust administration, and probate, just like Absolute Trust Counsel. But she has a very unique blend of experience as both an estate planner and a litigator, which we don’t have at Absolute Trust Counsel. She’s been involved with the preparation and trial of hundreds of cases representing Fortune 500 companies. She knows that side of the world.
I think that experience really helps her in her ability to help clients navigate those contentious family situations that actually come up from time to time in a trust administration or probate. Ruth graduated from Santa Clara School of Law, and she has a Bachelor of Arts in political science and public service from UC Riverside.
Before she formed her partnership with Koller Herlihy, she had her own law practice, and she was a tax consultant at Price Waterhouse Coopers, which is a very impressive pedigree, Ruth.
Welcome, Ruth. I’m so glad to have you here.
Thank you for the nice, kind words and introduction. It’s an honor to be here today and speak with you about what we do and see every day.
Thank you. As I said, we’re going to talk about community property and separate property. Before we go into it, let’s just make sure everybody understands this terminology. How do we define separate property and community property?
On a high level, separate property would be the assets you acquired before you were married and anything you inherited or were gifted during your marriage. What you earned during your marriage, such as your job after your marriage, those earnings would be considered community property.
Also, I guess it’s important to point out that I’m not sure how this will come up in our conversation, but when you have separate property, the income – what that separate property generates – is also separate property.
That’s the law, but couples can rewrite it for themselves if they think that’s a good thing to do, right?
Well, it’s interesting because most people think, “Oh, wait, I want to make sure what’s mine is mine, that I’m coming into the marriage with, that would be a prenuptial agreement.” Then, some agreements can happen after the marriage. What’s interesting to focus on in this conversation and what we do is that most of my clients, when contemplating the pre-nuptials or post-nuptials, are contemplating a divorce down the road.
Versus what we do – and that they almost forget the whole estate planning part of it –
they’re just worried about that. And they’re not getting through the steps of ensuring the plan is consistent with what they’ve put forth in the prenup or post-nuptial.
That is a good point. Do you, in your practice, do prenups or postnups?
Very rarely. I think when a client comes to us to do estate planning, we would have them sign a conflict of interest waiver to do their estate plan as a married couple.
In my opinion, the individuals signing the prenups and postnups should have independent counsel. Every once in a while, we’ll get involved in something after they’re married that was separate property, transferring it to community property, but in general, for a formal prenuptial agreement or postnuptial agreement, we would refer them to the council, and then they’d come back to us with that agreement in place.
We handle it pretty much the same. I do not do post-nuptial agreements or prenuptial agreements; we refer them to a family law attorney who’s familiar with them because those agreements require very specific formalities. Otherwise, they are not legally enforceable, and so I don’t want to mess with that. I don’t know the family code or all the case law, but the family law attorneys do.
Exactly, and they’re dealing with those unwinding and being a part of a divorce procedure.
They know where the pitfalls are in a different form that we may not know as estate planning experts.
Like you, I will occasionally do the little thing around the edges. Like what I’m thinking of the most common example I can think of is that, during the marriage, one of the spouses inherits a piece of real estate. That’s separate property under the law. But for various reasons, including tax, they might want it to be community property. That’s what we call a transmutation for the nerds out there.
It has to be done in writing. Something, a little thing like that, I’m willing to do in the right situation. But then you have to warn that spouse – if you do this, this is for real. You can’t undo it. If you get divorced down the road, it’s half and half. Or if you have kids from a prior marriage, they may not appreciate what you’re doing.
That’s another good point. I stay away from the prenupts and the postnupts, but I will do that little bit, a little tiny transportation here and there in the right situation.
Especially if they come in and they’ve been married for 75 years or something like that, they’re probably not going to get a divorce.
Right. We’re trying to put these estate plans in place that don’t have any cracks to them, any openings for people to question what was done. That prenuptial or postnuptial document serves as the foundation for it. That needs to be solid.
Absolutely. I have – it’s funny – I’ve had a number of cases where a married couple comes to me, and it’s their second marriage, maybe on both sides, and they’ve been married about –the number is funny – they’ve been married about eight years. This is very; I don’t know if you’ve seen it or if it’s just me. They’ve been married for eight years, and now they’re going to do estate planning together for the first time.
I’m talking to them about what they have when they got it, what’s separate, what’s a community, and what—in their minds—is separate from what’s community. They’ve kind of mixed things together, oftentimes inadvertently, like they don’t appreciate that’s a commingling that they’re mixing things together. Then we must send them out for a postnup to untangle it before we get going.
Exactly, I mean it would be somebody buying the vacation home, the condo in Tahoe, and buying it with the down payments with a separate property asset. Then they start using community funds to pay the mortgage, pay the property taxes, put on the new roof, and it just morphed into a co-mingled asset very easily.
It just didn’t occur to them that, like, “Oh, by using our wages, we’re making this separate property asset a community, it has a community component to it.” That’s a thing that we have to get clarity around in order to do the planning.
When you are working with clients who have, maybe, each spouse’s separate property and they have community property, are you talking to them about how many trusts—we’re talking about trust planning—are advisable in the situation?
That’s really interesting, and I think it’s very specific to the clients, the assets, the duration of the marriage if it’s a second marriage environment. I’ve seen, if it’s a second marriage and they’re separate property, I often, if there are kids from the first marriage, I’ll lean towards each of them having their own separate property trust and one community trust.
Yeah, I agree with you. I think it varies greatly depending on the client’s situation. But sometimes, there will be three trusts for a married couple. The husband has a separate property trust. The wife has a separate property trust, and then the community trust. And I don’t mean to be heteronormative. That’s just a shorthand for one spouse and the other spouse. The same would be true for a same-sex couple, but it can be done in one trust, and you do that sometimes, too—particularly in the first marriage.
Exactly. You don’t have to be a blended family to have separate property. You could just come into your first marriage with separate property. There are no stepchildren. All the children are of the two clients who are in front of us. Sometimes, it makes sense to keep it simple—one trust.
Right. For those clients, I see the distinction between separate property and community property; really, their intention was in the event of a divorce because when they pass, they intend everything to go in the same direction. Those estate plans to do one trust that holds separate property of each spouse and the community property make a lot of sense.
That’s a really excellent point, especially when the plan is to leave everything to my spouse, whether it’s community or separate. Really, do you need to mess things up or complicate things by having a whole other trust? Probably not.
When we are using just one trust, and we’re putting some of it separate, some of it community, one of the problems that I worry about is, that we can list on separate schedules, this is husband’s separate property, this is wife’s separate property, but then when they go to actually fund the trust, the account numbers change or years and years go by and what used to be a Schwab account has become a Fidelity account that I worry about. What do you think about that?
I think that is where it starts to get challenging to have the one trust. Because if you don’t have the funds going – if the funds are all going to the same beneficiaries in the same proportions, then it still doesn’t really matter. It’s moot.
But when it starts to be the different beneficiaries, because as we know, people don’t come back and it may take them years to get their plan done. As you said, eight years. It takes them years to get it done and then they go and open new accounts or change banks and that schedule gets stale.
Yeah, I have seen, though, in some situations where the financial institution will allow them to actually name the account. Like, let’s say it’s Schwab. I’m making that up. I don’t know if Schwab does this, but the title on the account will be the John and Mary Smith trust, a separate property of John Smith. They’ll actually be indicated right in the title of the account. I have seen that which if people could do that every time.
Wow, I haven’t seen that. I’m going to look for that now. It’s only occasionally, and maybe only certain institutions will do that, and I haven’t kept track of that, I don’t know. But I have seen that, so.
I think then that’s when somebody comes to you with a trust administration after somebody has passed. That’s where we come in and try to help the family sort this out and get a solution if there are different beneficiaries and try to sort out what’s where and just try to get everybody on the same page without exploding litigation.
Yeah, that’s where the rubber hits the road is in the trust administration when one spouse has died, and now we got to figure out – maybe we have to figure out – maybe it’s everything to my spouse, and it really doesn’t matter. That can be a challenge. In circumstances where it doesn’t go all to the surviving spouse if we have to fund a bypass trust, that would typically be funded exclusively with the separate property of the decedent plus their share of the community. So, what do we fund that with if it’s unclear? What is truly the separate property?
Then if the assets aren’t really clearly labeled, how do we trace that all the way back? That could get complicated.
So anyway, if there’s not a prenup or a postnup or things get murky, we have to talk to our clients about this. We have to say, “These are the possibilities, and you need to be aware of them.” We’re doing our best to make it as clear as we can. Because we certainly don’t want your children fighting down the road. It’s not good for anybody.
Thank you, Ruth. I, as I said, there’s much more to talk about on this topic and we will in our next episode, but thank you for being here. I really, really enjoyed talking to you about this topic.
Thank you. Watch for us in a future episode. We’re going to talk about some of our horror stories. Thanks for joining us. Great, thanks.
Resources Related to This Episode:
- Absolute Trust Talk Episode 135: Character Matters Part 2: Estate Planning for Community Property vs. Separate Property https://absolutetrustcounsel.com/135-character-matters-part-2-estate-planning-for-community-property-vs-separate-property/
- Absolute Trust Talk Episode 134: Character Matters Part 1: Understanding Community Property in Divorce and Estate Planning https://absolutetrustcounsel.com/134-character-matters-part-1-understanding-community-property-in-divorce-and-estate-planning/
- 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 own unique needs to effortlessly build a secure future now. 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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