Flexibility with Limitations: An Approach to control over community property.

          Married
persons, and registered domestic partners, need to consider how much control
they want to allow one another – acting alone – over their community property
assets.  This is important when creating
their powers of attorney, wills and joint trust.  The analysis involves three time periods:
First, while both are alive and competent; Second, when one spouse becomes
incompetent while the other is alive; and, Third, after the first spouse dies while
the surviving spouse remains competent.

          First,
what authority do they want to give each other independently to control
community property assets — both those inside and outside of a joint trust, as
relevant — while both are competent?  Should
either spouse alone be allowed to make gifts without the other’s participation
or consent?  This issue can be thorny in
blended families when one spouse wants to help his or her child(ren) and the
other spouse may not be quite as enthusiastic.

          Second,
if and when one spouse becomes incompetent, what authority should the other
spouse then have over community property assets?  Should the competent spouse be authorized to change
their community property assets into his or her own separate property to
qualify the incompetent spouse for Medi-Cal eligibility? 

California law requires
each spouse’s consent to name death beneficiaries of the community property non
probate assets – retirement accounts, annuities and life insurance.  Does the couple want the competent spouse to be
able to change designated death beneficiaries on such assets to reflect unforeseen
changed family circumstances?  If so,
each spouse’s durable power of attorney should be drafted to enable the other
spouse to do so.   

          Third,
after the first spouse dies, what authority should the surviving spouse have
over the couple’s community property assets?
If they want the surviving spouse to have complete control, then the surviving
spouse will need to be granted legal authority over the decedent’s one half
interest in the community property assets after death.  In that regard, let us consider assets inside
their joint trust and their other non probate assets.

Even if their trust says
the surviving spouse may amend and revoke the trust, case law shows that such
provision should not be depended upon to allow the surviving spouse to amend or
revoke the trust with respect to the deceased spouse’s one-half interest in the
joint trust’s community property assets.
Rather, the joint trust should either provide that any community
property assets are included in the surviving spouse’s sole trust, or that the
joint trust would grant the surviving spouse a power of appointment over the deceased
spouse’s one-half interest in community property assets.     

Next, let us consider
the death benefits on any retirement accounts, annuities and life insurance
policies titled in the surviving spouse’s name, which are either wholly or
partially community property.  The
deceased spouse has a community property interest in such assets.  For the surviving spouse to change who
receives the death proceeds it is necessary for the deceased spouse, while
alive, to have given the surviving spouse written authority over the deceased
spouse’s interest.  This is typically accomplished
through a will. 

Otherwise, failing such
authority in the deceased spouse’s will, any changes made by the surviving
spouse are only partially effective; that is, only effective over the surviving
spouse’s own one-half interest in the community property  and any separate property interest of the
account only.

The foregoing
limitation, however, does not apply to the surviving spouse’s ERISA qualified retirement
plans (i.e., pensions and 401(k) plans).
Federal law allows the participant spouse exclusive control to name
death beneficiaries.

Lastly, the foregoing
approach requires the drafting Lake County wills attorney to strike the right balance between
flexibility and caution.  Doing so entails
imposing sensible limitations that curtail flexibility in order to prevent
undesired results.