Estate tax planning may require surviving spouses to sue their own trusts to get their rightful share
This article in the Wall Street Journal highlights one of the unintended consequences of Congress’ failure to pass a new estate tax law. In California, where estate planning using trusts is very common, most couples have some form of estate tax planning built into their trusts. Even for couples who never had any realistic chance of being subject to the estate tax it is common to find some form of estate tax planning either because the couple’s attorney inserted the language as a matter of caution.
Surviving spouses are entitled to control their own separate property and one-half of the community property they shared with their late spouse. The title to the couple’s property does not always make clear what is separate property and what is community property. A surviving spouse, particularly in a second or later marriage, will want to retain control over their share of the marital property. This is property they can use to support themselves and can be left to anyone they choose when they die.
A surviving spouse who believes their trust with their late spouse has “overfunded” the decedent’s trust by putting community property into the decedent’s trust (i.e. the B trust, credit shelter trust, bypass trust, etc.) will have to file a spousal property petition in the probate court. This is a form of trust litigation. This probate court petition alleges the property was community property while the deceased spouse was still alive and half of it therefore rightfully belongs to the surviving spouse. These petitions often trigger being able to trace the chain of title to prove how the title was held before the property was titled in the name of the trust.
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