Protect your estate from being given away by the surviving spouse
Community property laws vary by jurisdiction, so it's important to note that the following information may not apply universally. However, we can provide you with a general understanding of how community property laws can protect an inheritance in certain situations.
In community property jurisdictions, such as in California, marital property is generally divided into two categories: separate property and community property. Separate property refers to assets and debts acquired by an individual before the marriage or during the marriage through specific means, such as inheritance or gifts designated as separate property. Community property, on the other hand, includes assets and debts acquired during the marriage by either spouse.
When it comes to inheritance, the treatment of the inherited property can depend on how it is managed. A common way to protect inherited property from becoming community property is through the use of an A-B trust, also known as a bypass or credit-shelter trust. This trust is typically established by a married couple in their estate plan.
In an A-B trust, upon the death of the first spouse (referred to as the decedent), the assets are divided into two separate trusts: the A trust (marital trust) and the B trust (bypass trust or family trust). The A trust is usually funded with an amount up to the estate tax exemption limit, and the B trust receives the remaining assets.
The key aspect here is that the B trust, also known as the bypass trust, is often designed to be a separate property trust. This means that the assets within the B trust are considered separate property of the decedent and not subject to division as community property between the surviving spouse and any subsequent spouses.
By establishing the A-B trust structure, the surviving spouse typically has limited control and access over the assets in the B trust. However, they may receive income generated by the trust and potentially receive distributions for certain purposes, such as health, education, maintenance, and support.
The use of an A-B trust can help protect the inherited property from being entirely given away by the surviving spouse. Since only the assets in the A trust are typically considered community property, the assets within the B trust remain separate property and are not subject to the same division rules.
It's important to consult with a qualified estate planning attorney or legal professional in your jurisdiction to understand the specific implications of community property laws and how they may apply to your situation.
