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Why Can’t I Have My Parent’s Property? The Step-Parent Gets Everything???

In traditional nuclear families, the passing of assets from one parent to the other and then to the kids is a natural occurrence most of the time. But when you have a parent who marries a different spouse, a step-parent to you, then the passing of assets is not so simple; especially where the step-parent has children of his or her own. All too often assets pass from a parent to a step-parent and then on to the step-parent’s children, leaving you out in the cold.

The incorrect passing of assets usually occurs when no planning is done by your parent. Under the law of intestacy, all community property passes entirely to the surviving spouse (meaning your step-parent) and not to you. If your parent had separate property, then one-half (if you are an only child) or one-third (if there are two or more children) goes to the surviving spouse and the rest to you and your siblings.

The problem is that determining what is community and what is separate property can be complicated as the years pass by. The longer the marriage and the more mixing of assets between the spouses makes it virtually impossible to determine if separate property even exists. Therefore, the estate will be deemed community property and pass entirely to step-parent (Yikes!).

Worse yet, many people create Trusts that state everything is to pass to the surviving spouse and allow the survivor unfettered control over the assets. That means the survivor will have total control of the assets regardless of whether they are separate or community property.

So how should a parent secure assets for his or her children? There are two easy ways. One is to create a joint trust with a spouse that separates assets once the first spouse dies. The surviving spouse’s assets pass to a Survivor’s Trust, which remains revocable and changeable, and the deceased spouse’s assets pass to a Bypass Trust, that is irrevocable and unchangeable. The Bypass Trust allows the survivor to use the assets for his or her benefit, but prevents the survivor from changing the beneficiaries (meaning you) of the Bypass Trust.

The other solution is for your parent to create a separate property trust, which essentially is just another revocable trust that has ONLY that person’s separate property included within it. As a separate trust, it can be managed by an independent trustee once the parent dies and can either be held for the surviving spouse’s benefit or simply pass the assets out to the children right away.

Unfortunately, neither of these two easy solutions will arise automatically. It takes a little bit of planning and foresight to make them happen. But it is well worth the time and expense to plan an estate out from the beginning. Otherwise, you may be in for a rude surprise after your parent dies.