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Three Reasons to Use a Separate Property Trust for Your Inheritance or Gift

Three Reasons to Use a Separate Property Trust for Your Inheritance or Gift

At GBB we are our clients’ fiduciaries, and we keep our clients’ best interests in mind always.  We continuously look to identify issues that our clients may face, and look for ways to help clients make smart decisions with their money.  When you are the beneficiary of an estate or receive a large gift you most likely want to be a good steward of the assets you receive.    

Here are three reasons to consider using a Separate Property Trust to accomplish that.

To limit access and maintain control

A properly drafted and funded trust you create naming yourself as sole trustee is one way to make sure only you have access to, and the ability to exert any control over the assets you’ve received.  You may have any number of reasons to want to do this including being married to someone that has a propensity to spend.

To protect the assets from creditors 

Assets held in your Separate Property Trust are your assets, not your spouse’s.  Therefore, if your spouse injures someone else, your assets held in your Separate Property Trust are not available to satisfy a judgment against them.  It would be a disappointing experience to have your inheritance go away to compensate someone else through no fault of your own.

To avoid the possibility of the assets becoming community property through commingling or transmutation 

In California and other community property states, the general rule is that assets owned by either spouse are community property unless you can prove otherwise.  Your intentions are clear if you hold your separate assets in a Separate Property Trust.  Your intentions are far less clear if you commingle them with assets you and your spouse own together.  One of the concepts in community property is a process called “transmutation”.  When that happens, the character of separate property can change to community property, and vice versa.  Even if your assets are not transmuted into community property through an agreement you’ve signed, commingling them with marital assets can be problematic should you need to unwind who owns what.  That happens all the time in a divorce proceeding.  Property that was yours could have lost its identity somewhere along the way and become impossible to identify.

While we are not currently practicing law as estate planning attorneys, some of us are inactive attorneys with estate planning experience or knowledge, and many of us at GBB are Certified Financial Planner Professionals.  Call us at (916) 924-7527 to discuss your financial needs.

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