No Estate Planning and Rude Awakenings

Estate planning by a married person can help to avoid unintended negative consequences to a surviving spouse and children. This is particularly important when the married person is in a subsequent marriage and has separate property acquired prior to the current marriage.

Does a surviving spouse automatically inherit the deceased spouse’s house? Some married people believe that just by their being married the surviving spouse alone automatically inherits the deceased spouse’s ownership interest in the family house. Learning otherwise can be a rude awakening to the surviving spouse. The division of a deceased spouse’s estate without estate planning and the need for a probate may not be intended by the deceased spouse.

In California, without estate planning a decedent’s estate is divided amongst the decedent’s heirs under rules of Intestate Succession (i.e., “succession without a will”). California is a community property state that recognizes both separate and community property interests. Separate property assets and community property assets are treated very differently.

Assets acquired while married and living together in California are presumed to be community property assets. Community property assets belong equally to both spouses during life and are divided equally at death or divorce. Such assets are often placed by the spouses into their joint living trust. In the absence of a will or a trust by the deceased spouse to the contrary, the deceased spouse’s one-half share of a community property asset goes to the surviving spouse. No probate is needed.

Assets owned by either spouse as separate property remain separate property at death. In the absence of a will or a trust by the deceased spouse to the contrary, separate property assets are divided amongst the deceased spouse’s heirs. A surviving spouse is entitled to either one-half or (most often) one-third of the deceased spouse’s separate property assets, without a will. Without the deceased spouse doing estate planning, the deceased spouse’s estate may be subject to probate if the deceased spouse had substantial separate property assets, like a residence.

Consider a deceased spouse who owned the family home as his own separate property from before the marriage. With separate property, California intestate law rules provide the surviving spouse with only a one-third interest and the remaining two-thirds is shared equally amongst the decedent’s surviving children. Had the residence been a community property asset — whether acquired in the deceased spouse’s name alone or in both spouse’s name(s) — then the surviving husband does inherit the entire residence without the deceased spouse having a will in California.

How can the surviving spouse avoid becoming homeless? Fortunately, in California a surviving spouse may open a probate proceeding and petition the court for a probate homestead to allow the surviving spouse and any minor children to live in a residence for a period of time. This is true even if the deceased spouse died without a will or died with a will but either disinherited or omitted the surviving spouse as a beneficiary. The homestead can last for a period of years up to the surviving spouse’s lifetime.

However, a probate homestead is discretionary with the probate court. It must balance the interests of the surviving spouse with the competing interests of the decedent’s surviving children and any creditors with liens on the residence. Disagreement can result in litigation. The children and creditors may object.

Once created, a probate homestead is subject to the court’s supervision. A probate homestead can terminate sooner if the surviving spouse should remarry or fail to meet their obligations as a tenant.

A probate homestead is not as desirable as being life beneficiary of an ongoing trust created to hold title to the wife’s residence. The trust could even allow the trustee to sell the residence and buy a replacement if relocation was necessary.

The foregoing discussion shows how no estate planning leads to unintended consequences. It is not legal advice. If confronting the situation consult a probate attorney. Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.