What is inherited is separate property

By McNichol & Tillem

Dear Len & Rosie, My sister and I inherited a $2 million apartment building. My wife of 31 years and I have a trust. I have no problem adding her name to the deed as a trustee, but could I stipulate in an agreement with my wife that if she asked me for a divorce down the road she would give the property back to me? -- Douglas

Dear Douglas, Everything you and your wife acquire during your marriage as a result of your labor is community property. But you did not earn your inheritance.

Everything you inherit is your separate property, and will remain separate property unless you do something to transmute it into community property. California law requires an express transmutation in a writing that clearly states you are converting your separate property to the community property of you and your wife.

Most well-drafted trust documents include a provision that says putting property into the trust, or taking it out of the trust, will not change its characterization as either separate or community property. Because of this, your inheritance should not be transmuted into community property if you put it into your revocable trust, even if your wife is a trustee.

But that’s not playing it safe. Your trust could say otherwise, and we do not have the opportunity to review it. If you sign a deed putting your half of the apartment building into the trust and you get divorced later, your wife can make things very difficult for you. Remember the old saying that possession is nine-tenths of the law? If the two of you get divorced, she may refuse to sign a deed putting the property back into your name, even though it belongs to you alone. It would make your divorce more expensive than it would be otherwise if you have to fight her over this.

It’s a silly rule, but the best way to keep your separate property separate is to keep it separate. Keep the property out of her name, even as a trustee. Create a new revocable trust just for your separate property. Keep it separate by never, ever transferring anything into your separate property trust that can be traced to any community property source.

Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at 996-4505, or www.lentillem.com. Len also answers legal questions each weekday, noon to 1 p.m., and Sundays, 4-7 p.m., on KGO Radio 810 AM.

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