California Family Code § 761: Community Property in Trusts

Plain-Language Summary

California Family Code § 761 addresses what happens when a married couple places community property into a trust (especially a revocable living trust). In simple terms, this law ensures that putting community property into a revocable trust doesn’t change its status as community property, unless the trust document clearly says otherwise. Here are the key points in plain language:

Community property stays community: If spouses transfer community property into a revocable trust (one that can be changed or canceled) that requires both of them to agree on changes, that property remains community property during the marriage. It doesn’t matter who is named as trustee – merely changing title to a trust doesn’t make it separate property.
Either spouse can revoke (unless stated otherwise): Unless the trust document explicitly forbids it, either spouse acting alone can revoke or pull back community property from the trust. If community property (and any earnings or growth from it) is taken out of the trust (whether by revocation, withdrawal, etc.), it remains community property – unless at the time it’s taken out both spouses agreed in writing to change it to separate property (a valid “transmutation”).
Trustee’s management power: The trustee of the trust can manage, sell, or control the trust property per the trust’s terms without needing both spouses to sign off on every decision, **unless** the trust document itself says the trustee needs one or both spouses’ consent for certain actions. In other words, by default the trustee has the power to handle the assets, but the trust can require spousal approval if that’s what the spouses wanted when they set it up.
Applies to past and future transfers: These rules apply to property put into a trust before, on, or after July 1, 1987. (This date is when a law change took effect, but the statute makes the rule retroactive and forward-looking. Even older trust transfers are covered so long as they meet the conditions.)
Other types of transfers not affected: If community property is transferred in a way or into a trust that doesn’t meet the conditions described in this section (for example, an irrevocable trust, or any transfer that doesn’t keep a revocation right requiring both spouses’ consent), § 761 doesn’t apply to change the outcome. In such cases, other laws and general principles will determine whether the property stays community or becomes separate. Family Code § 761 is basically a protective rule for the common scenario of spouses putting assets into a standard revocable joint trust.

Real-World Examples

Example 1: Maria and John, a married couple, transfer their jointly owned home (community property) into a revocable living trust. John is named as the sole trustee. Under Family Code § 761, the home is still considered community property during the marriage, even though it’s now held in a trust with John as trustee. The fact that the property is in a trust (and who the trustee is) doesn’t change their equal ownership. If they later divorce, the house will be treated as community property because placing it into the trust didn’t alter its character.
Example 2: Assume the same trust as above, and it allows either spouse to revoke the trust. John decides to revoke the trust as to the home and transfers the house back into their names alone, without Maria’s explicit consent at that moment. Because the trust didn’t require both spouses to agree to a revocation, John is permitted under § 761(b) to revoke the trust on his own. Once the house is removed from the trust, it is still community property (because there was no agreement or document changing it to separate property). John cannot claim the house as his separate asset simply because he took it out of the trust – it remains a jointly owned marital asset.
Example 3: Now consider a trust where the document says both spouses must agree in writing to any revocation or removal of property. If John alone attempts to revoke that trust and withdraw the home, that action would violate the terms of the trust (since the trust explicitly required both spouses’ consent). In this scenario, § 761 would not override the trust’s requirement. John’s unilateral revocation would be invalid because the trust “expressly provides otherwise” (requiring both spouses to act together). The law defers to the spouses’ own agreement in the trust instrument.
Example 4: Lisa and Mark put a large sum of community money into a joint bank account held by an irrevocable trust (one that they can’t easily revoke or amend). Because the trust is not revocable as described in § 761, this law (§ 761) doesn’t automatically keep the money as community property. Other legal rules would apply to determine what happens to that money. For instance, if one spouse effectively gave up their interest by placing it into an irrevocable trust, that could be viewed as a change of character subject to other Family Code provisions (like the requirement of a written agreement for transmutation). The key point is that § 761’s protections only kick in for certain kinds of trusts (generally revocable trusts requiring joint action).

Published Case Law on § 761

The following are notable California cases interpreting or applying Family Code § 761:

Estate of Powell (2000) 83 Cal.App.4th 1434 – In this case, a husband revoked a joint revocable trust after his wife’s death and claimed the entire trust property. The Court of Appeal discussed Family Code § 761(b) and Probate Code § 15401. It confirmed that, during both spouses’ lifetimes, either spouse may revoke a community property trust and that such revocation would ordinarily cover all the community property in the trust (not just the revoking spouse’s half), unless the trust document says otherwise. However, the court also noted that when one spouse dies, the community property in the trust effectively splits into separate property halves (each spouse’s half interest becomes their separate property at death). In Powell, because the wife had died (transmuting the community property into a half-interest for each as separate property by operation of law), the husband’s post-death revocation could only reclaim his half of the trust assets – the other half had to go according to the wife’s will. This case illustrates both the broad power to revoke under § 761 and the limitation that death imposes on community property status.
Masry v. Masry (2008) 166 Cal.App.4th 738 – This published appellate decision involved a married couple (Edward and Joette Masry) who created a joint revocable trust. Shortly before Edward’s death, he unilaterally revoked the trust (without telling Joette) and moved his share of assets into a new trust benefiting his children from a prior marriage. Joette challenged this move, arguing it was invalid since she didn’t receive notice during Edward’s lifetime. The Court of Appeal upheld Edward’s unilateral revocation. It reasoned that because the trust did not explicitly make its own revocation method exclusive, Edward could use the default method allowed by law. Family Code § 761(b) and Probate Code § 15401(b) together allow one settlor of community property to revoke the trust as to that community property, unless the trust expressly says otherwise. In Masry, delivering the revocation to himself as trustee was deemed sufficient. The case underscores that absent a clear trust provision requiring both spouses’ consent or some other exclusive procedure, either spouse may revoke a community property trust on their own under § 761.

Full Text of California Family Code § 761

(a) Unless the trust instrument or the instrument of transfer expressly provides otherwise, community property that is transferred in trust remains community property during the marriage, regardless of the identity of the trustee, if the trust, originally or as amended before or after the transfer, provides that the trust is revocable as to that property during the marriage and the power, if any, to modify the trust as to the rights and interests in that property during the marriage may be exercised only with the joinder or consent of both spouses.

(b) Unless the trust instrument expressly provides otherwise, a power to revoke as to community property may be exercised by either spouse acting alone. Community property, including any income or appreciation, that is distributed or withdrawn from a trust by revocation, power of withdrawal, or otherwise, remains community property unless there is a valid transmutation of the property at the time of distribution or withdrawal.

(c) The trustee may convey and otherwise manage and control the trust property in accordance with the provisions of the trust without the joinder or consent of either spouse unless the trust expressly requires the joinder or consent of one or both spouses.

(d) This section applies to a transfer made before, on, or after July 1, 1987.

(e) Nothing in this section affects the community character of property that is transferred before, on, or after July 1, 1987, in any manner or to a trust other than described in this section.

This content is provided for general informational purposes only and is not legal advice. Laws and their interpretations can change, and how the law applies to your specific situation may vary. For advice regarding your own circumstances, consult a qualified attorney.