Income and wealth disparities in married couples are not uncommon. However, in some cases the disparity can keep growing throughout the marriage and impact estate and Medi-Cal planning. For example, in cases where one spouse works while the other is retired or inherited money, the wages are community assets while the other income is not. In today’s “modern families,” the issue of property ownership is increasingly important.
In the television show Modern Family, the patriarch of the family, Jay, marries a much younger woman, Gloria. In the show, it is to be understood that Jay amassed a fortune prior to meeting Gloria; he lives in a large house in Los Angeles and is retired. By default, all of his fortune belongs to him as his sole and separate property; nothing belongs to Gloria. Gloria does not work. In the event of a divorce, she would own nothing, although she would likely be entitled to some support. In their estate planning, Jay could create a Separate Property Trust and choose how his wealth should be distributed at death, who should manage it, and all the other important aspects of a trust completely without Gloria’s input.
If Gloria did work, however, half of her income would belong to Jay automatically as community property. In other words, her assets would be shared in the marriage, while his are not. Understanding the nature of your own property interests in your marriage is essential to your estate plan. Depending on your goals, it may be beneficial to “transmute” separate property into community property in order to provide increased flexibility after the first death or in distributions. Alternatively, it may be desirable to discuss with your attorney how to avoid commingling of assets in order to retain your separate property’s character. If nothing else, it might just be nice to understand how your property is owned for future reference.
Many trusts contain provisions indicating that all trust property will retain its character as either separate or community. As a result, completing a joint estate plan does not necessarily affect how the property is owned. This is true even though both spouses put their name on accounts, deeds, and other assets as Trustees of the Trust. In divorce or at death, there may be substantial confusion about the nature of particular items due to a failure to discuss property ownership with your attorney.
Additionally, for purposes of planning forMedi-Cal, it may be beneficial to change the nature of your property ownership so that the well spouse may have more flexibility with keeping or giving away assets, even while the ill spouse qualifies for Medi-Cal. For example, if the well spouse gives away separate property in order to bring the couple’s wealth level down, under certain circumstances it may not create a period of ineligibility. However, entering into such agreements to change the character of assets prospectively, or to allow authority for someone to do so if necessary, should not be done without the advice of counsel who is familiar with Medi-Cal.
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