Married couples frequently have separate property—that is, property that belongs to one of the parties, and isn’t part of the marital estate. It could be a piece of real estate, a business, or other asset that they had prior to the marriage or inherited during the marriage.
Separate property can make your estate planning more complicated, especially if you and your spouse are planning for one of you to be a survivor spouse, and have control of the rest of the property. One way to do that is to transmute separate property into marital property so that the other spouse can inherit it as he or she would for the marital property.
An Explanation Of Transmutation
This is a common concept in divorce cases, but is also applicable to estate planning.
Section 503(c)(1) of the Illinois Marriage and Dissolution of Act states that “when marital and non-marital property are commingled by contributing one estate of property into another resulting in a loss of identity of the contributed property, the classification of the contributed property is transmuted to the estate receiving the contribution.”
The basic premise is that separate property becomes marital property, or marital property becomes separate. In both estate planning and divorce, the status of the property is changed from its current state of being into another one.
Illinois Is Not A Community Property State
Unlike states like Arizona, Texas and Louisiana, Illinois law follows “equitable distribution.” That means that each party owns the income earned during the marriage, but marital property is divided between the parties in a divorce. This division may not be “equal,” but will be what the judge considers “equitable.”
Since Illinois doesn’t use “community property” standards in a divorce, separate property can become joint property by transmutation. That is, property used by both parties through the duration of the marriage no matter whose name is on the title as the official owner. This will also apply to property purchased with both marital and separate funds. If one party inherits a house from a family member, and it is used by the spouse and children as a family home, it will “transmute” into marital property and therefore be divided as part of the marital estate in a divorce or transferred in probate.
In order to have marital property become separate property, in the same fashion one person would transfer, or “transmute” their ownership to the other spouse, both for divorces and for estate planning.
For estate planning purposes, a written agreement specifically stating their intent to transmute would be ideal to ensure that the separate property becomes marital property and there are no questions when property is transferred, either into a trust or in a will.
Why Transmute Separate Property For Estate Planning?
Turning separate property into marital property makes estate planning much easier, especially if you are adding it into a trust. Of course, you will have to ensure that a spouse who has the advantage must show that there was no coercion involved, and that the transfer is made with a complete understanding of the facts as well as the effect of making the transfer.
Transmuting also ensures that property settlement in an estate plan will be exactly what both parties would like to have, rather than a probate court dividing up the estate.
It is also important for both parties to have their own independent counsel to advise them on all of the risks and benefits of transmutation in their estate planning to avoid any conflicts of interests and the appearance or claim of undue influence by the other party.
If either or both parties would like to keep some property separate, they can consider transmuting some property into a marital property trust while moving other non-marital properties into separate trusts.
Call Provenza Law, Chicago’s Estate Planning Attorney
Before you begin transferring any property into a trust, it’s essential to get expert advice first. An estate planning attorney can help with financial advice as well as the best way to plan your estate.
With more than 20 years of experience with estate planning in the Chicago area, James C. Provenza & Associates will work with you and develop a plan that works best for you’re your spouse, children and other beneficiaries, and ensures that your wishes are respected. To speak with Chicago attorney James C. Provenza, call our law firm today at (847) 729-3939.