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If you do not have an estate plan, the state of California has one for you. The California Probate Code contains intestacy rules that determine where your assets go when you die without an estate plan. This default distribution scheme can lead to devastating results.
Imagine you and your husband plan to use his inheritance from his parents to fund your retirement. Unfortunately, early into retirement, your husband dies. You meet with an attorney and learn that your husband’s siblings get half of your husband’s inheritance.
Or, that you and your first wife accumulate significant wealth during your marriage. Your wife predeceases you. Many years later, you remarry. A year after that marriage, you die. Your child is surprised to learn that your new spouse gets half of the assets you brought into your second marriage.
Why the odd results?
California’s default distribution scheme is a one-size fits all distribution plan for people who die without an estate plan. Generally, under this default scheme, only a set portion of a deceased spouse’s separate property passes to the surviving spouse. A surviving spouse will only inherit all the deceased spouse’s separate property if the deceased spouse has no children, grandchildren, parents, siblings or nieces and nephews.
What is separate property?
In California, separate property is anything owned prior to marriage, gifted to a spouse or inherited by a spouse. So, if a spouse comes into the marriage with substantial assets or receives substantial assets during marriage by either gift or inheritance, then that spouse has separate property.
What is the impact of California’s default distribution scheme when a spouse has separate property?
If the marriage is a long-term marriage, the default distribution scheme can result in the surviving spouse receiving less than the deceased spouse likely intended. This can have devastating results if the separate property is property that the surviving spouse intended to rely on for support in retirement.
If the marriage is a short-term marriage, this default distribution scheme can result in the surviving spouse receiving more than the deceased spouse likely intended. If the deceased spouse and surviving spouse were recently married, the deceased spouse may prefer to leave a larger portion of their separate property to a child or their family.
How do we fix this?
California’s default distribution scheme can be avoided with an estate plan. You can create an estate plan to designate where you want your assets to go when you die.
If you create your own plan, you have several options for how your separate property can be distributed when you die including:
- Dividing your separate property between your spouse, children, family members or other people in whatever percentages you wish.
- Continuing to hold your separate property in a trust and allowing your surviving spouse to benefit from it during their lifetime, with the remainder eventually going to other beneficiaries. This approach ensures your spouse is provided for while still letting you control who ultimately receives the property.
Don’t delay planning for your separate property
When a spouse dies without an estate plan and has separate property in their name, that separate property will pass according to California’s default intestacy rules. This can upset a surviving spouse or other family members who feel the distribution is unfair or not what the deceased spouse would have wanted. The only way to avoid these issues is to create an estate plan that is intentional so that your wishes are known and followed.
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