Estate Planning in Community Property States
Community Property states treat marital income and property differently than other states. If you live in, or relocate to, one of these states, your estate plan must take these laws into account.Spousal Inheritance in a Community Property State:
Community property is a form of ownership between spouses where any property and assets that were acquired during the marriage, other than a gift or inheritance, is owned by each spouse equally. Property that each spouse brings into the marriage is considered separate property. However, a married couple can transform separate property into community property by agreement or action; for example, by commingling community and separate funds in one account.
The following types of property acquired during a marriage are generally considered community property: earnings; damages recovered from a personal injury lawsuit; damages awarded in an industrial accident action; property purchased with money either spouse earns during the marriage; and rents and profits from separate property.
In a community property state, at death, you are usually entitled to leave your half of the community property to whomever you wish. However you are required by law to leave the other half of the community property to your spouse.
In some community property states, (Arizona, Nevada, Texas and Wisconsin) you can add the “right of survivorship” to your community property so that when one spouse dies, the other automatically owns the deceased spouse’s half of the couple’s community property, which avoids probate.
In California and New Mexico, under certain conditions, couples can qualify for simplified procedures for transferring community property which also avoids probate. In the other community property states, the community property must go through probate.
Even if you no longer live in any of these states, it’s important to let your estate planner know if you and your spouse lived in a community property state before, in order to identify any remaining community property.
If you and your spouse entered into a premarital, prenuptial, or post-nuptial agreement stating that there will be no community property, this will override the state-mandated status of community property.
