Here at Trust & Will, we spend a lot of time discussing why it can be beneficial to avoid the probate process. Although it is an important process that can be necessary, such as when someone dies without a Will, it is costly and time-consuming. If you live in a community property state, you and your spouse may be able to avoid probate by creating “community property with right of survivorship.” Keep reading to find out why this ownership structure can be a great option if it is available to you.
What is community property?
Community property is a legal classification that is applied to property acquired and amassed during the marriage of two individuals who live in a community property state. If the couple were to ever seek a divorce or dissolution of marriage, then the concept of community property would be applied to determine how the property should be divided between them.
When living in a community property state, any property you acquire during marriage is automatically community property, regardless of how that property is titled. For instance, the wages that you earn while you are married are still a part of the community property that you share between you and your spouse. However, there are some exceptions. A common example is property that you inherit as an individual, since it wasn’t acquired during your marriage. A second example is any property you intentionally exclude from community property, such as through a prenuptial agreement.
Want to find out whether you live in a community property or separate property state? Learn more about this important distinction and how it affects your estate plan in our guide here.
Does community property go through probate?
For those living in community property states, a popular question that comes up is, “does community property go through probate?”
The simple answer is maybe. In general, the legal classification of “community property” simply describes ownership interest. In other words, it describes how the ownership structure is set up, and who is entitled to how much of that property. In marriage, each spouse would hold an equal share of ownership.
However, the community property classification does not address how that property should be conveyed. Thus, it’s possible that community property with no other classification must pass through probate to determine how the title should be conveyed.
If you’re not sure what the probate process is, or how it might affect you, it’s a great idea to become familiar with the process now. This is because it’s an important legal process that affects how your property is transferred when you pass away. It can be time consuming and costly, so many individuals like to take advantage of options that allow them to pass property outside of probate when it’s available to them.
Does community property avoid probate?
Community property doesn’t always avoid probate. If a property is titled solely as “community property,” then it will still pass through probate because it indicates ownership interest but doesn’t indicate how the property should be conveyed in the case of the death of an owner.
However, there are certain instances when community property can avoid probate, such as property owned in joint tenancy or community property with the right of survivorship.
What is community property with right of survivorship?
What is community property with the right of survivorship? When you title jointly-owned property in a community property state, you have the two options: community property with or without the right of survivorship.
The right of survivorship indicates how property title should be conveyed, and is included in certain types of deeds to property. The deeds that include the right of survivorship are:
Tenancy by the entirety
Community property (with the right of survivorship)
If one of the owners passes away, then their share of property interest automatically passes to the surviving owner. Although the right of survivorship is often used between married couples (such as through community property or tenancy by the entirety), it can also be used between siblings, business partners, or any set of two parties that own property together.
When it comes to community property acquired between a married couple, they have the option to add on the right of survivorship feature to ensure that if one of the spouses pass away, then the property would automatically pass to the surviving spouse. The property would not be included in the decedent’s estate and thus avoids probate. The surviving spouse simply absorbs the deceased spouse’s half of the property such that they own the entire property. Once this legal mechanism takes place, then the property is no longer community property. The surviving spouse is now the sole owner and can sell, gift, and transfer the property to whomever they’d like as they please.
Note that survivorship community property is only available to married couples or registered domestic partners. If you’re thinking about buying property with a party other than a spouse and wish to have the right of survivorship, consider using a joint tenancy deed instead.
Here are the states that currently offer the option of community property with right of survivorship:
How survivorship community property avoids probate
Now let’s discuss the mechanics that explain why survivorship community property avoids probate.
When an individual passes away, the property and assets that make up their estate must pass through the probate process to determine how it should be distributed. However, there are certain exceptions. Any assets or property that include a mechanism to transfer property directly and automatically to a survivor do not go into the decedent’s estate and thus do not have to go through probate proceedings. These include assets with beneficiary designations as well as property that have the right of survivorship.
If a married couple acquire property in a community state and opt to include the right of survivorship, then the probate process is not necessary in order to execute the transfer. The surviving spouse simply needs to file a petition, along with the death certificate, to the appropriate entity to transfer title to themselves. (This could include the bank, the department of motor vehicles, or the county records office, depending on the type of property in question.)
Know your options for ownership & estate planning
When entering any type of union, whether it be marriage or a domestic partnership, it’s important to have open and honest discussions regarding ownership. Speaking about the possibilities of divorce and death were traditionally frowned upon, but couples are increasingly becoming more objective, practical, and proactive.
Here, it is empowering to be informed on your options for ownership, and how your decisions can impact your estate planning. You can even take it one step further by planning your estate and making your ownership decisions around it.
If you live in a community property state, then one of your ownership options is community property with right of survivorship. As discussed in this guide, this is property acquired during a marriage or a registered partnership in a community property state. When you choose to add on the right of survivorship, you are agreeing that if you were to pass away, then your spouse would automatically absorb your share of the property. As a result, they will own the entire property. You would not be able to bequeath your share of the property through your Will or Trust to a different heir. This may be the outcome you wish to achieve, in which case this ownership option becomes a no-brainer.
However, life can bring on more complexities. What if you become estranged from your spouse? What if you are going through a divorce but you pass away before it’s finalized? What if you really wish to pass your half of the property directly to your child instead of your spouse?
For these reasons, it’s helpful to be versed on your different ownership options so that you can make changes when necessary.
When you do make changes, always be sure to review and update your estate plan. This is because your estate plan touches on how your property should be conveyed should anything happen. Whenever you make changes to the ownership structure of property, it is likely that your estate planning strategy and thus documents must be adjusted.
Looking for an easy solution to establish your estate plan and keep it updated regularly? Trust & Will offers what you’re looking for! Find out how to get started today.
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