Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Thursday, November 28, 2019

Your Slice of the Pizza – Only Directly Inherited Asset Qualifies as Separate Property

PizzasliceMany states that are community property states declare that property that is inherited is categorized as separate property rather than part of the community estate. In California, the 5th Court of Appeals has ruled that for assets to remain separate property, they generally must have been acquired through direct inheritance, meaning inherited from one's parents.

George Deluca settled with his two siblings after numerous years over a trust his father had that held his real estate after the father died in 1990. In 1996, George agreed to waive any right or claim to any other property of the trust in exchange for title to three properties. In 1997, George and his sister entered into an “Amendment to Settlement Agreement,” under which the sister agreed to transfer the Florida Street property (an apartment complex) that had been allocated to her to George in exchange for cash and a promissory note. In 2011, George and his wife divorced, and George claimed that the Florida Street property was separate property as it was inherited. The San Diego Superior Court judge agreed, and the wife appealed.

While George and his sister chose to characterize his acquisition of the Florida Street property as an “amendment” to their trust litigation settlement from the year prior, the Court of Appeals looked through that description. The court found that George purchased the Florida Street property from the sister at a time when she had sole ownership of it. Thus, George’s acquisition could not be deemed an “inheritance or devise” and instead the general community property presumption controlled.

A negotiated allocation of assets from a trust or estate is like slicing up a pizza. As a beneficiary, you bargain for and get to keep as your separate property the particular slice you receive. However, if you later acquire (purchase, are gifted, etc.) another person’s slice of the same pizza, it presumptively will be one that you must share as community property with your spouse.

See Jeff Galvin, Your Slice of the Pizza – Only Directly Inherited Asset Qualifies as Separate Property, Trust on Trial, November 25, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2019/11/your-slice-of-the-pizza-only-directly-inherited-asset-qualifies-as-separate-property.html

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Comments

Inheriting from parents is the whole ball of wax in California. In fact we don't understand why more states don't follow this playbook!

Posted by: Geoffrey Sadler | Apr 29, 2020 1:09:43 PM

Every state needs to be able to transfer parents property taxes to beneficiaries, when inheriting property taxes... This saves beneficiaries so much when parents pass away... avoiding property tax reassessment on the transfer costs, plus the low base rate from the core inheritance savings from Prop 13. Plus the ability to fix squabbling among siblings when some want to keep an inherited home while others insist on selling, equalizing cash liquidation to them with a trust loan from a trust lender, without having to sell. Paying a fraction of what would otherwise be a much more severe tax hit every single year, if Proposition 58 not active. All states should have tax law in place like this. Why other states do not is inexplicable. Politicians in the lower 48 should get this done. Instead of whining about the Clintons or Obama. Those politicos should work on tax law like Prop 13 and Prop 58, to help middle class citizens not just billionaires and wealthy corporations. People should research https://www.boe.ca.gov/proptaxes/proptax.htm - that covers Proposition 58. Or https://propertytaxtransfertrusts.com and other Websites that cover Proposition 13 and Proposition 58, probate, trust loans, how to keep parents property taxes and how to
transfer parents property taxes so you can keep some cash in the bank, all about Inheriting property taxes, property tax transfer process and parent to child transfer or parent to child exclusion, as well as avoiding property tax reassessment -- at niche Websites such as https://cloanc.com/category/prop-58 - to get clear on their facts, and email their representatives to put into law property tax measures to make living more comfortable in America... and not just for rich people. For regular folks, in every state in the union.

Posted by: Geoffrey Sadler | May 18, 2020 3:28:01 PM

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