Many people believe that everything automatically passes to their spouse upon their death, regardless of how property is titled or any estate planning documents prepared. In some cases, this may be true. However, there are several situations where this may not be the case, and the surviving spouse may either not receive the property or may experience difficulty gaining access to the property, even if the deceased spouse intended that their surviving spouse receives everything.
To begin this discussion, it is important to understand the difference between separate property and community property. Generally, separate property is all property a spouse owned before the marriage, and any property acquired through gift or inheritance during the marriage. Community property is generally all other property acquired during marriage. These characterizations are important upon the death of a spouse because they often determine how a spouse’s property is distributed upon death when there is no written estate plan.
For example, if a spouse dies with a surviving spouse and a surviving child, the surviving spouse will typically receive all of the deceased spouse’s community property. However, the surviving spouse may only receive a portion of the deceased spouse’s separate property, while the surviving child receives the other portion. This is often a surprise to couples who believe and intend that everything they own passes to the surviving spouse upon death.
Upon the death of a spouse, there is a presumption that the way an account is titled reflects the characterization of the property as either separate or community property. An account titled in the name of one spouse alone will be presumed separate property. This presumption can only be overcome by clear and convincing evidence that the property was community property.
To demonstrate issues that can arise upon the death of a spouse, we will explore some common scenarios:
Wendy and Henry got married ten years ago. Wendy had a daughter, Danielle, from a prior marriage, and Henry had no children. Wendy and Henry both believed that everything they owned would pass to the surviving spouse and did not do any estate planning. Wendy recently died, and Henry and Danielle both survived her.
Wendy and Henry had some joint bank accounts, but Wendy also had a couple of bank accounts titled in just her name alone.
Without any estate planning documents to reveal Wendy’s intent for the distribution of her property, this means that a court would presume that Wendy’s accounts titled in her name alone were Wendy’s separate property. As separate property, it would typically be divided between Henry and Wendy’s daughter, Danielle. However, Henry may be able to rebut the presumption that the account was Wendy’s separate property if he can show clear and convincing evidence that the account was community property. He may be able to do this by tracing the source of the funds in the account to community property funds and by showing that Wendy intended for the account to be treated as community property.
This process of proving that the account was community property can be timely and difficult for the surviving spouse because it can involve analyzing all transactions coming in and out of an account. This burden could have been avoided by either adding Henry as a co-owner of the account or by creating an estate plan that stated Wendy’s wishes that Henry receive all of her property upon her death.
Wendy owned a home before she married Henry, and this home remained titled in her name alone during their marriage. After they married, Henry moved into the home with Wendy, and they lived there together until Wendy’s death.
Because Wendy owned the property before her marriage to Henry, the home is Wendy’s separate property and may be divided between Henry and Danielle upon Wendy’s death. However, as a co-owner of the home, Danielle may be able to require Henry to pay rent to live in the home, force a sale of the home, or evict Henry from the home.
Wendy wanted Henry to be able to live in the home for as long as he lived. Her wish could have been accomplished with proper estate planning documents. Wendy could have created a trust to ensure that Henry received the home upon her death. On the other hand, if Wendy wanted Danielle to eventually own the home, Wendy’s trust could have provided that Henry could live in the home for his lifetime, but that Danielle would receive the home upon Henry’s death. Either way, proper estate planning would have accomplished Wendy’s goals.
Even if you believe that your spouse will get everything you own upon your death, it is important to ensure that the title of your assets and your estate planning documents reflect your intent for how your property is distributed upon your death and avoid any unpleasant surprises for the surviving spouse. An experienced estate planning attorney will be able to advise you regarding titling your assets and preparing any estate documents necessary to achieve your wishes.
No matter what your situation is with your spouse, it is imperative to create an estate plan that shows a clear line of action when it comes to the distribution of assets, including community and separate property.
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