Mar 16

What Is Community Property?

What Is Community Property?

While most couples are aware that Washington is a community property state, many do not fully understand what this means. The general assumption between couples of “what’s mine is yours and what’s yours is mine” may be sufficient when conceptualizing the notion, but falls short when it comes to planning your estate.

Community Property Defined

Simply put, community property is all property accumulated during your marriage or registration as a domestic partnership. Community Property defines ownership as being equal between the spouses, but does not govern inheritance – it defines who owns what, not who gets what. So, while you and your spouse may each own one-half of your estate as community property, your spouse does not necessarily inherit the entire estate upon your death. You are still free to direct who will inherit your share of the community property.

Not All Property is Community Property

Property acquired prior to marriage, inherited, or received as a gift by one spouse is that spouse’s separate property; however, it has to be treated and maintained as separate property to keep it from becoming community property.

Community Property Does Not Avoid Probate

Just because all of your assets may be classified as community property, this alone does not avoid probate. Even with a Will that leaves everything to your spouse, the probate process may be necessary to transfer your half of the community property to your spouse. A simple way to avoid probate upon the death of the first spouse is through a Community Property Agreement.

The Community Property Agreement

The community property laws in Washington merely define ownership in property. However, Washington allows married couples and domestic registered partners to enter into a contract, called a Community Property Agreement, whereby all property (which can also include all separate property) goes to the surviving spouse at the time the first spouse passes.  By using a Community Property Agreement, couples can ensure that their entire estate passes to the surviving spouse and completely avoid going through probate upon the first death.

Is a Community Property Agreement for Everyone?

Keep in mind that the Community Property Agreement leaves everything to the surviving spouse.  While your overall goal may be to provide for your spouse in the event of your death, a Community Property Agreement may not be the best way to accomplish this.  Situations where the Agreement may not be appropriate include estates over $2 Million, where the Agreement will create negative estate tax consequences; couples facing long-term care issues where the Agreement will frustrate qualifying for health care benefits; and blended family situations where each spouse wants to ensure that their assets will pass to their own children upon the death of the surviving spouse.  In these situations, a Testamentary Trust in your Will is likely a better option. Also, a Community Property Agreement cannot be used to transfer property located outside of Washington State.  In all of these situations, your goals can still be accomplished with a well-crafted Estate Plan tailored to your needs.

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