Complications with parents trust & my current marital situation.

[Cynthia Mae]

What is the name of your state? California

My father is terminally ill, and my parents are in the middle of re-doing the trust and will of their estate. They are considering putting their home (valued over 1 Mil) in the names of their 5 children, which includes me. I'm in a 2nd marriage which appears will not make it. We've been married 9yrs, he has 2 adult children from a previous, I have 4. My concern is if my father puts his estate in his childrens names, will that be considered community property if I divorce?
My husband brings no inheritance into this marriage. I feel my inheritance should be secured for my 4 children, who are my parents grandchildren.
I need some wisdom. We have no pre-nup and at this time no trust of our own, yet! What would be the best way to proceed to secure my inheritance?

 

[Ithildriel]

What is the name of your state? California

My father is terminally ill, and my parents are in the middle of re-doing the trust and will of their estate. They are considering putting their home (valued over 1 Mil) in the names of their 5 children, which includes me. I'm in a 2nd marriage which appears will not make it. We've been married 9yrs, he has 2 adult children from a previous, I have 4. My concern is if my father puts his estate in his childrens names, will that be considered community property if I divorce?
My husband brings no inheritance into this marriage. I feel my inheritance should be secured for my 4 children, who are my parents grandchildren.
I need some wisdom. We have no pre-nup and at this time no trust of our own, yet! What would be the best way to proceed to secure my inheritance?

I am not an attorney, nor do I play one on t.v., but a recent situation lent me to learning a lot about estate planning in California.

Gifts and inheritances are considered separate property in California. As long as you do not co-mingle them with community assets (say, you took your share from the sale of the house, and paid joint debt with it, or placed the funds in a joint checking account) then the inheritance is yours to keep separately.

 

[seniorjudge]

They are considering putting their home (valued over 1 Mil) in the names of their 5 children, which includes me.

This could be abad idea as far as capital gains taxes are concerned.

Post your question for tax responses in the tax forum.

 

[divgradcurl]

I am not an attorney, nor do I play one on t.v., but a recent situation lent me to learning a lot about estate planning in California.

Gifts and inheritances are considered separate property in California. As long as you do not co-mingle them with community assets (say, you took your share from the sale of the house, and paid joint debt with it, or placed the funds in a joint checking account) then the inheritance is yours to keep separately.

This is correct. You do not need to worry about your inheritance being treated as community property as long as you take minimal precautions to keep it separate.

 

[Cynthia Mae]

They are considering putting their home (valued over 1 Mil) in the names of their 5 children, which includes me.

This could be abad idea as far as capital gains taxes are concerned.

Post your question for tax responses in the tax forum.

I was told that because this would be our inheritance, that us children would not have to pay capitol gains taxes. Any info on that?

 

[Cynthia Mae]

This is correct. You do not need to worry about your inheritance being treated as community property as long as you take minimal precautions to keep it separate.

What type of minimal precautions do you suggest? Thanks!

 

[divgradcurl]

I was told that because this would be our inheritance, that us children would not have to pay capitol gains taxes. Any info on that?

If it is put in your name after your parents die -- in other words, you inherit it -- then capital gains, if any, will be calculated based on the difference between your sale price and the fair market value of the house at your parent's death. If the house is put into your name before your parents die, then your "basis" will be the price that your parents paid for the house originally, so your gain would potentially be much greater for tax purposes. It was not clear from your post whether your parents would be gifting during their life or leaving the house when they died, hence SJ's questions.

 

[divgradcurl]

What type of minimal precautions do you suggest? Thanks!

1. Don't put husband's name on the deed.
2. Don't obtain any type of mortgage or home equity loan using your joint credit (i.e., wait until AFTER the divorce to take out any type of loan that uses the inheritance as collateral).
3. Don't use community funds to pay down any existing mortgage, to pay taxes, or to make repairs or improvements to the house. This may be tricky, as any money you make as part of your job is community property, so you may have to get creative here.
4. Any money you receive should be kept in a separate bank account to which your spouse has no access. Do NOT use any of this money (if any) to pay any "community" debts. In other words, do not use the money you receive in your inheritance (or from the sale of any property you inherit) to pay grocery bills, or your current mortgage or taxes, don't improve your existing home, don't buy "community" gifts, etc.

In other words, basically keep anything you inherit from being used as if it were community property, and you should be able to keep any of your inheritance from being claimed by your husband as community property. The trick here is to really keep things separate, because the courts prefer community property, so if they can find a way to make any property acquired during marriage community property, they will. If you make it appear to the court that you are not really trying to keep your separate property separate, they may presume that you meant it to be community property, and treat it as such. Keep it separate, and you should be fine.

Also, note that once you separate and are living apart with no intention on returning or reconciling, then money you receive from your job and the like is separate property -- you don't have to wait until you file for divorce or until the divorce is final. But you must be living apart with no intention to reconcile in order for what would normally be considered community property to be considered separate property.