Legal separation between spouses means that the spouses' financial lives are separated without ending their status as a married couple. However, legally, separated spouses are not treated in the same way as a non-legally separated married couple.

Here are some scenarios where legally separate spouses and non-legally separated spouses may be treated differently:

1. A legally separated spouse may not inherit from his or her spouse through intestate succession. In this context a "surviving spouse" does not include a legally separated spouse.
2. Certain rights afforded a spouse after the death of the other such as temporary use of a family home, establishment of a probate homestead, and family allowances are not available for legally separated spouses.

Although in some respects legally separated spouses and non-legally separated spouses are treated differently, in others, there is no effect. For example, if one spouse names his or her spouse as a beneficiary of a retirement account, legal separation does not affect the survivor even though they were legally separated at the time of death. The survivor would still inherit the retirement account.

Likewise, joint tenant assets are not affected as a result of legal separation, nor does legal separation affect a bequest in a Will from one spouse to another from whom they are legally separated.

Divorce and re-marriage can have a significant affect on the estate plan you have in place.

First and foremost, in California, an "Automatic Temporary Restraining Order" is in effect during the marriage dissolution process. This generally hinders your ability to do estate planning as the law wants to avoid changes in your financial position during the pending divorce. 

Beneficiary Designations

If you designated your ex-spouse as a beneficiary of an asset with a beneficiary designation, for example, your retirement account, this designation is automatically revoked as a result of your divorce.

It's important to remember, however, that the divorce does not revoke the designation of your ex-spouse as the beneficiary of life insurance policies. It's therefore important to take stock of all of your assets and ensure that all beneficiary designation forms are properly updated during the estate planning process.

Remarriage

If you created an estate plan while you were single and then got married, your estate planning documents may be overridden at the time of your death, if your spouse survives you.

Your surviving spouse is entitled to the "statutory share" of your probate or trust estate. More details will be provided in another post; however, just note that if you have an existing estate plan and you get married, you must take steps to ensure that your estate plan will still be enforced despite your marriage. Most often, this can be a statement in your estate planning documents which states that you intend for your estate plan to be effective even though you recently were married.

Marriage brings with it many joys, but divorce is a precipitating event that forces many people to revisit the estate planning process. If you're going through a divorce, are contemplating divorce, or have completed a divorce, it's important to see what impact it may have on your estate plan.

In California, being married can present unique challenges to the estate planning process. More detail will be provided in other posts, but here is a preview of some of the issues that couples may face:

1. If you own community property with your spouse, you may need consent before transferring  the community property to a third party.
2. If you own community property assets that will pass without probate (for example, by beneficiary designation), then you may need your spouse's consent to name a beneficiary other than your spouse.
3. You are not entitled to designate the beneficiary of your spouse's retirement plans that are protected by ERISA (401(k), 403(b), etc.). (But see point 2, above.).

Although there may be complications, there are also benefits. For example, spouses can generally rollover the retirement benefits of their predeceased spouse. In addition, any community property that is owned by a married couple will get a full step-up in cost basis after the death of one of the spouses (which may reduce income tax consequences for the surviving spouse). Property that is transferred from one spouse to the other is also excluded from property tax re-assessment.

One of the most common estate planning documents in California is the Revocable Living Trust. You can think of a Revocable Living Trust kind of like a container to hold your assets while you're alive. This container is governed by a set of specific instructions that you lay out in the document that creates the trust, and tells others how the assets inside the trust are to be used for your benefit while you're alive and how the assets are to be distributed after you pass away. Depending on your marital status, there will be different ways to create a trust.

Single Person

If you're single, or not married and not in a registered domestic partnership, you will most likely have a revocable living trust that holds all of your own assets. Also, any assets that use a beneficiary designation, such as life insurance policies or retirement accounts will likely have the trust named as its primary beneficiary so that the proceeds from those assets can be distributed in accordance with the revocable living trust provisions.

Married Persons

If you're married, it is likely that you and your spouse will create a single joint revocable living trust that holds both of your assets--whether it is community property or the separate property of both spouses. Occasionally, couples will create 2 or more revocable living trusts--one to hold the couple's community property, one to hold one spouse's separate property, and perhaps one more to hold the other spouse's separate property. The specific combination will depend on factors such as:

1. Whether and/or the amount of separate property that each spouse has.
2. The value of the assets that the spouses' own overall.
3. The similarity or disparity in how each spouse wants to distribute his or her assets.
4. Other personal factors such as each spouse's belief in the other's ability to handle financial affairs.

Day-to-Day Life Remains the Same

So long as you (and your spouse, if you have a joint living trust) are alive and fully functioning, there's no practical change to how you handle your financial affairs once the trust is set up. Because revocable trusts can be amended, changed, or revoked by you, they do not provide any immediate benefit for tax or creditor purposes (though this is not necessarily the case after you pass away). If a trust is revocable and amendable, then:

1. Transferring assets to the trust does not cause any adverse tax consequences.
2. Income taxes as a result of rent, dividends, capital gains or losses are treated the same as it was prior to creating the trust. 
3. The trust assets will be included as part of your estate.
4. There is no reassessment of your real estate for real property taxes (a huge benefit for long-time residents in counties where the property tax bases tend to be much lower than the fair market values of the property, such as in Los Angeles County).

Schedule of Assets

In most trust documents, there's a separate schedule which lists all of the assets that you own and is supposed to be contained within the trust. This is helpful for at least a few purposes.

First, if you die and haven't otherwise kept a good record of the property that you own, this schedule can be useful to your successor Trustee, who can use the list to track down your assets.

Second, if you forgot to re-title those assets in the name of your trust, it could serve as the basis for a "Heggstad" petition, which is a special procedure to transfer those assets to your trust without the need to go through a full probate process.

So there you have it, a few basics of a revocable living trust.