Published on:

Distinguishing Marital and Separate Assets in Estate Planning

In making an estate plan, it is important to make a complete list of all assets you own. This is especially helpful to your future executor or trustee, who will be responsible for marshaling your assets after your death and distributing them as you direct. Confusion over the ownership of assets can lead to litigation, as this recent California case illustrates.

Estate of Quon

A married couple had three children. In 1968, the father purchased a 5% interest in a company whose sole asset is an apartment complex in Glendale, California. The company’s majority owner previously worked as the couple’s accountant. In 1972, the majority owner issued formal stock certificates to the husband alone, who made all the financial decisions for the couple.

In 1991, the couple established a living trust and named themselves as trustees. One of the couple’s children and her husband were named as successor trustees. Although the trust was supposed to contain schedules of each spouse’s separate and marital assets, the schedules themselves were left blank. Simultaneous to the execution of the trust, the husband signed a last will and testament, which left the residue of his estate to the trust. The husband died in 2004.

At this point, the ownership of the apartment stock was disputed. The majority owner claimed the wife sold her late husband’s shares back to him a month after he died for a total of $33,000. This sale was not disclosed on the estate’s tax return, however, nor was it listed in an updated schedule of trust assets signed by the wife the following year.

In 2013, the daughter, now acting as executor of her father’s estate, sued the majority owner, claiming the estate still owned the 5% interest, which she said was worth $400,000, not the $33,000 her mother received. The executor argued the wife never had the authority to sell the shares, as she never owned them; they were the separate property of the husband which passed to the estate upon his death. Furthermore, the executor argued the sales agreement between the wife-who could not read or understand English-and the majority owner was the product of fraud.

Unfortunately, the executor never got the opportunity to prove the merits of her argument. In June 2014, a probate judge dismissed the executor’s complaint, holding it was barred by California’s statute of limitations. The mother sold the stock in 2004. In California, the statute of limitations on a fraud claim is three years. The executor did not file her complaint until 2013, nearly six years after the deadline expired. Neither the probate court nor the Court of Appeal found any just cause to extend the limitation period, meaning the stock sale stands.

Keeping Accurate Accounts
The above case is merely an example and not a complete statement of California law. But it is instructive in highlighting the need to keep complete and accurate records of your assets. If you have a spouse, it is imperative you keep up-to-date schedules of marital and separate property, so there is no confusion later on as to which assets may be subject to probate or trust distribution. If you need advice on this or any related California estate planning matter, contact the Law Office of Scott C. Soady today.

Contact Information