Dear Len & Rosie,
My mother will be 90 this year. She is thinking about giving most of her money away within the next year or two to her two children and many grandchildren. She has about $100,000, and does not own a home. Mother is especially concerned that my brotherís wife not get any of it. (Donít ask). If she gives a gift of money to her son is that considered separate property or community property?
The default rule is that everything a husband and wife acquires during their marriage is community property. Fortunately, a gift or inheritance is separate property. But thatís only half the battle. Your brother has to be careful to keep his separate property separate. He should keep the money in accounts that do not have his wifeís name on the title.
Your brother may even want to put the money into accounts at completely different financial institutions from where he and his wife keep their money today. With the popularity of online banking, it could be possible for your brotherís wife to access his separate property accounts through the Internet, just because they have already arranged for online access to their other accounts.
Also, your brother must never, ever, ever, put any money into his separate property accounts that comes from a community property source, such as his paycheck. Thatís called commingling and can result in some of your brotherís pre-inheritance gift being counted as community property if he and his wife divorce. If he commingles community and separate property within the same account, the burden of proof would be on your brother to show what portion of the account should be his and his alone.
You may have to protect your brother from himself. He may not be strong enough to withstand his wife, so he could put her name on the accounts anyway. Your mother can prevent this from happening by putting your brotherís share of her gifted money into an irrevocable family protection trust. That way, the money can be spent on your brother and he wonít be able to give it to his wife.
If your mother gives away more than $13,000 to any one person this year, she must file a gift tax return with her income tax returns next year. But her unified credit protects the first $5,000,000 of her assets from gift and estate tax, so she will not have to pay any gift tax to the IRS.
But your mother should be concerned about Medi-Cal. She may be giving her money away because she is worried that she will wind up in a nursing home and have to spend her life savings on her care. If so, she should be very cautious. Giving away her savings in a lump sum gift would make her ineligible for Medi-Cal nursing home benefits for almost two years. If your mother is trying to qualify herself for Medi-Cal benefits if she needs nursing home care in the future, she should first talk to an Elder Law attorney who practices Medi-Cal planning.
Len & Rosie
Dear Len & Rosie,
My parents both have wills. They have two kids, me and my sister. My mom has metastatic cancer, so she will probably die before my dad. The problem is that my dad does not get along with me and my sister. My mom wants to make sure that certain monies are left to me and my sister and that my dad does not leave them to someone else in his family. At the same time, she wants to make sure he still has his house, any joint accounts, anything else that they share.
So my mom has separate accounts with her name only on them, with me and my sister at payable upon death. If she puts ďI leave my entire estate to my husband,Ē will he have access to these separate accounts also? Or should she put something else in the will?
Assets in pay-on-death accounts are not subject to the terms of your motherís will. Even if her will leaves everything to her husband if he survives her, the pay-on-death accounts should, under most circumstances, pass on to you and your sister without any difficulties. You can just show up at the bank with your motherís death certificate and divide up the money.
The problem with your motherís plan is that California is a community property state. Everything your parents earn during their marriage is owned by both of them equally. While your mother has the right to give away her half of the community property to anyone she wants upon her death, she can give away only her half.
If your mother funded her pay-on-death accounts with community property, then your father could claim, and rightfully so, that half of the money belongs to him, even though heís not listed on the accounts. The pay-on-death transfers could be overturned because they would count as a transfer of community property made without the consent of both spouses under Family Code section 1101. Of course this will not be a problem if the money in the pay-on-death accounts were previously inherited by your mother.
Your mother is trying to provide for you and your sister because your father may not do so. But sheís doing it the wrong way by trying to be sneaky about it and putting money aside in pay-on-death accounts that your father may not even be aware of. She can do better than this. She can leave you more. She could, for example, sever the joint tenancy on the home she shares with her husband and leave him only the right to live there until his death, rather than giving it to him outright. If she acts now and consults with a trusts and estates attorney, she can do a much better job of providing for both her husband and her children upon her death.
Len & Rosie
Len Tillem and Rosie McNichol are elder law attorneys. Contact them at 846 Broadway, Sonoma, CA 95476, by phone at (707) 996-4505, or on the Internet at www.lentillem.com. Len also answers legal questions each weekday, Noon-1 p.m. and Sundays, 4-7 p.m. on KGO Radio 810 AM.