Okay, so here's what happened last semester in my Master’s of Social Work (MSW) program. We were discussing family systems and asset protection, and I realized how many people have absolutely no idea how property ownership affects their loved ones after they pass. It's one of those topics that sounds boring until you're the person sitting in probate court six months after losing your spouse, wondering why you can't access your own home.
The way property passes between married couples varies dramatically depending on where you live. Think of it like this: some states see marriage as creating an economic partnership where everything earned during the marriage belongs equally to both spouses. Other states treat each spouse's property separately unless you specifically title it together. Understanding which system your state uses isn't just academic knowledge, it has real financial consequences for your family.
Community property states operate on a pretty straightforward principle. When you get married in one of these states, assets acquired during the marriage automatically belong to both spouses equally. That includes your salary, the house you buy together, even the car one spouse purchases in their name alone. The textbook answer is that marriage creates a 50/50 economic unit, but really it's about recognizing that both partners contribute to the family's wealth even if only one works outside the home.
Now here's where it gets interesting (and where a lot of people mess up). Just because you live in a community property state doesn't mean everything automatically transfers to your spouse when you die. Property you brought into the marriage stays separate. That vacation cabin you inherited from your grandparents? Still yours alone. Which means if you want your spouse to inherit it without going through probate, you need to add specific language to the title.
Nine states follow community property rules according to IRS Publication 555: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska allows couples the option to elect into community property status through a written agreement, though it defaults to common law property rules.
Each state has its own particular twist on these rules. California applies particularly strict 50/50 divisions. Louisiana's system draws from French Napoleonic Code, so the terminology differs slightly. Wisconsin implemented its Marital Property Act in 1986, making it the only Midwestern community property state according to the Wisconsin Department of Revenue. If you're moving between states or own property in multiple locations, understanding these variations becomes crucial for estate planning.
The remaining 41 states use what's called "common law" or "equitable distribution" systems. In these states, property belongs to whoever purchased it unless you specifically add both names to the title. Judges in equitable distribution states divide assets based on fairness rather than automatic equality during divorce, which can lead to less predictable outcomes.
Let me simplify this for you. When you add "with right of survivorship" to community property, you're creating an automatic transfer mechanism. Your property passes directly to your surviving spouse the moment you die, without any court involvement. No probate judge needs to approve it. No executor needs to file paperwork. The transfer happens by operation of law.
This automatic transfer provides two major benefits. First, it saves time and money by avoiding probate entirely. Second, and this is the part that surprised me when I first learned about it, community property with right of survivorship triggers what tax experts call a "double step-up in basis." In plain English, that means both spouses get to reset the property's value for tax purposes when the first spouse dies. This can save your family tens or even hundreds of thousands of dollars in capital gains taxes when you eventually sell.
Here's the key distinction. In a community property state, marital assets are automatically owned 50/50. But without the right of survivorship language, your half doesn't automatically go to your spouse when you die. Instead, your share passes according to your will or, if you don't have a will, according to state intestacy laws. That means probate court, potential claims from other heirs, and all the delays that come with court proceedings.
Adding right of survivorship to the title creates a different legal structure. Each spouse owns 100% of the property, not just 50%. It sounds contradictory, but legally it means that when one spouse dies, the survivor already owns the whole property. There's nothing to transfer because the survivor's ownership was always complete.
This legal structure prevents anyone else from claiming an interest in the property. Your adult children from a previous marriage can't contest the transfer. Creditors of the deceased spouse face significantly higher hurdles. The property passes cleanly and completely to the surviving spouse.
The distinction between community property and equitable distribution states matters enormously for estate planning. In community property states, that 50/50 split is automatic and mandatory for marital assets. You purchase a home during the marriage? Both spouses own half, period. One spouse earns income? That paycheck belongs equally to both.
Equitable distribution states take a completely different approach. Judges look at numerous factors to determine what's fair in each specific situation. How long were you married? Who contributed what to the household? Did one spouse give up career opportunities to raise children? These subjective considerations lead to different outcomes in similar cases.
For estate planning purposes, community property states offer more predictability. You know exactly what percentage each spouse owns. Titling decisions become more straightforward. Tax planning becomes easier because the ownership structure is clear from the start.
But equitable distribution states provide more flexibility. Judges can consider circumstances that rigid 50/50 splits ignore. If one spouse brought substantial separate property into the marriage and kept it separate, equitable distribution might mean they retain more assets. If one spouse committed financial misconduct, equitable distribution might compensate the innocent spouse.
California enforces what estate planners call the "pure" community property system. Every asset acquired during marriage splits exactly 50/50. The state doesn't require each individual item to be divided equally, you can offset the family home against a business interest, for example. But the net value must equal out.
California extends community property treatment to registered domestic partnerships as well as traditional marriages according to the IRS Internal Revenue Manual. This expansion recognizes that committed couples deserve the same legal protections regardless of whether they've formalized their relationship through marriage. Nevada and Washington also extend community property rules to domestic partnerships.
The state treats gifts and inheritances as exceptions to community property rules, but only if you keep them separate. Deposit your inheritance into a joint checking account? You've probably just converted it to community property through commingling. This is where people make expensive mistakes that we could've avoided with better planning.
Theory is great, but let me walk you through some scenarios that show how this plays out in real life. I've changed the names, but these situations mirror what I see families dealing with all the time.
Max bought a house in Phoenix in 2020 for $300,000. He got married to Casey in 2022. Because Max purchased the home before the marriage, it remains his separate property despite Arizona being a community property state. The couple lives happily for years, making improvements and building equity. Max passes away in 2026, and the home is now worth $500,000.
Without right of survivorship language on the title, the property doesn't automatically transfer to Casey. Instead, Casey must file a claim as a surviving spouse in probate court. If Max had children from a previous marriage, they might contest Casey's claim. If Max died without a will (intestate), Arizona's intestacy laws determine who inherits what. The probate process could take 6 to 12 months, cost thousands in legal fees, and leave Casey unable to refinance or sell the property during that period.
Casey faces emotional stress while grieving, financial uncertainty about the home's status, potential conflicts with Max's other heirs, and mounting legal bills that reduce the estate's value. This entire nightmare could've been avoided with proper title planning.
Let's rewind and assume Max and Casey took an afternoon to update their property title. They recorded a new deed listing the property as "community property with right of survivorship." Max still passes away in 2026 with the home worth $500,000.
This time, the moment Max dies, Casey automatically owns the entire property. She files Max's death certificate with the county recorder's office along with a simple affidavit. Within a few weeks, the title reflects Casey as the sole owner. No probate court. No contested hearings. No six-month waiting period. Casey can immediately refinance, sell, or keep the home as she wishes.
The tax benefits make this even more attractive. Because Arizona is a community property state, Casey gets a double step-up in basis. The property's tax basis increases from Max's original $300,000 purchase price to the $500,000 value at his death. If Casey sells the home shortly afterward for $510,000, she only pays capital gains tax on $10,000 of profit instead of $210,000. At a 15% capital gains rate, that's a tax savings of $30,000.
Okay, this is where the magic happens from a tax perspective. And I know "tax planning" sounds about as exciting as watching paint dry, but stick with me because this can save your family serious money.
When you sell an asset, you pay capital gains tax on your profit. The profit equals the sale price minus your "basis" (essentially what you paid for it, plus certain costs and improvements). Hold an asset for more than a year, and you qualify for long-term capital gains rates of 0%, 15%, or 20% depending on your income, according to Fidelity.
When someone inherits property, the tax code normally adjusts the basis to the fair market value on the date of death. This is called "step-up in basis." It wipes out decades of appreciation for tax purposes. Your grandma bought stock for $5 per share in 1980, and it's worth $200 per share when she dies in 2026? Your basis steps up to $200. Sell it immediately, and you owe zero capital gains tax despite the massive appreciation during her lifetime.
This step-up prevents inheritors from facing huge tax bills on appreciation that occurred during the decedent's life. Without it, families might need to sell assets just to pay the taxes, forcing liquidation of family businesses or cherished properties.
Single Step-Up in Joint Tenancy vs. Double Step-Up in Community Property
Here's where community property with right of survivorship pulls ahead of regular joint tenancy. In joint tenancy (the most common form of co-ownership in non-community property states), each spouse owns 50% of the property. When one spouse dies, only their half gets stepped up to current market value. The surviving spouse's half retains the original basis.
Let's run the numbers to show why this matters. You and your spouse buy a home in 2000 for $200,000. In 2026, when your spouse passes, the home is worth $800,000. You sell it in 2027 for $1 million.
Under joint tenancy (single step-up):
Under community property with right of survivorship (double step-up):
The double step-up saves you $45,000 in this example. For families with highly appreciated property, the savings can be much larger. I've seen cases where the differential reached six figures.
The Internal Revenue Code Section 1014 establishes step-up in basis rules. For community property specifically, the IRS grants a step-up on both halves because community property law treats each spouse as owning an undivided interest in the whole property. When one spouse dies, the entire property gets revalued, not just the deceased spouse's share.
This tax treatment recognizes the unique nature of community property ownership. Both spouses always owned the whole property together, so the IRS adjusts the entire property's basis upon the first death. It's not a loophole or aggressive tax planning, it's the intended operation of the tax code for community property according to IRS Publication 555.
In my MSW program, we learned about how bureaucratic systems can retraumatize people during vulnerable periods. Probate is a perfect example. You've just lost your spouse, and instead of being able to grieve, you're filing paperwork, appearing in court, and paying lawyers to prove you should inherit property you thought was already yours.
According to Trust & Will's Probate Study, probate costs typically range from $22,500 to $52,500 on a $750,000 estate. Yet 56% of surveyed Americans believed probate costs $1,000 or less. This massive gap between perception and reality leaves families financially unprepared.
The study found that probate duration averages 20 months nationally, though it varies significantly by state. California probate averages 1.5 years. Texas ranges from 6 months to over a year. Colorado requires a minimum 6-month court-open period even for straightforward cases. During this entire time, estate assets often remain frozen, unable to be sold or refinanced.
Breaking down the typical costs:
These costs come directly out of the estate before beneficiaries receive anything. So that $500,000 home you wanted to leave your spouse? After probate, they might receive $460,000 or less.
The financial costs represent just part of the burden. According to the Estate & Probate Legal Group, executors spend an average of 570 hours settling an estate through probate. That's equivalent to 14 full work weeks of time navigating court procedures, gathering documents, notifying creditors, and handling disputes.
Probate proceedings are public record. Anyone can access the court files and see what assets the deceased owned, who the beneficiaries are, and what disputes arose. For families who value privacy, this exposure feels invasive during an already difficult time.
Beneficiaries can't access estate assets during probate without court permission. That means the surviving spouse might struggle to pay the mortgage, cover property taxes, or handle home repairs while waiting for probate to conclude. They're stuck in limbo, legally unable to fully control property they lived in for decades.
Both joint tenancy and community property with right of survivorship achieve the primary goal of avoiding probate. But for couples in community property states, choosing community property with right of survivorship offers superior tax benefits.
Joint tenancy with right of survivorship (JTWROS) is available in all 50 states. When you hold property as joint tenants, each owner has an equal, undivided interest. All owners must acquire the property at the same time through the same deed. When one owner dies, their interest automatically transfers to the surviving owners.
Joint tenancy offers simplicity and wide availability. You can establish it between any co-owners, not just married couples. Siblings who inherit a family home together often hold it as joint tenants. Business partners might use joint tenancy for shared property. The structure works well for many situations.
But for married couples in community property states, joint tenancy means giving up the double step-up in basis. You get the probate avoidance benefit but lose the tax advantage. That's a significant trade-off, especially for highly appreciated assets.
If you live in a community property state and you're married, community property with right of survivorship gives you everything joint tenancy offers plus the tax benefit. You avoid probate through the automatic transfer. You get the double step-up that can save tens of thousands in capital gains taxes. There's really no downside compared to joint tenancy for married couples in these states.
The only catch? You must be married or in a recognized domestic partnership. Unmarried co-owners can't use community property with right of survivorship even if they live in a community property state. For them, joint tenancy or tenancy in common remains the appropriate structure.
Some couples worry that community property locks them into rigid structures, but you can change your title relatively easily if circumstances change. A new deed recorded with the county updates your ownership structure. You should definitely work with an attorney to do this properly, but it's not a permanent, unchangeable decision.
Not everything you own automatically becomes community property when you get married in a community property state. The timing of acquisition and the source of funds determine whether property is community or separate.
Generally, anything you acquire during the marriage using marital income becomes community property. Your salary? Community property, even if earned by only one spouse. The house you buy with those earnings? Community property. The car purchased in one spouse's name alone? Still community property if bought with marital funds.
This extends to less obvious assets. Retirement account contributions made during marriage become community property. Stock options granted to one spouse for their work performance? Community property. Even debts incurred during marriage are generally community debts that both spouses share responsibility for.
The key factor is when and how you acquired the asset. The name on the title matters less than the source of funds and timing. If you used marital income to purchase property during the marriage, it's presumptively community property in community property states.
Certain property remains separate even in community property states:
The critical word is "kept separate." Commingling separate and community property can convert everything to community property. Deposit your inheritance into a joint checking account and use it to pay family expenses? You've probably just turned separate property into community property through mixing the funds.
Some states recognize agreements between spouses to keep certain property separate or to convert separate property to community property. These transmutation agreements must be in writing and signed by both spouses to be enforceable.
When Community Property With Right of Survivorship Might Not Be Right for You
I try to always present the complete picture, not just the advantages. While community property with right of survivorship offers powerful benefits, certain situations call for different planning strategies.
If you have children from a previous relationship, you might want them to inherit your share of assets rather than having everything automatically transfer to your current spouse. Community property with right of survivorship overrides your will, so those assets will pass to your surviving spouse regardless of what your will says.
In blended family situations, couples often prefer tenancy in common or estate planning trusts that can direct assets to children from prior marriages while still providing for the surviving spouse. These structures require more planning but offer greater flexibility for complex family dynamics.
Consider a scenario where both spouses have adult children from previous marriages. They might want the surviving spouse to live in the family home for their lifetime, but then want the property to pass to their respective children. Community property with right of survivorship doesn't accommodate this goal, but a life estate or qualified terminable interest property (QTIP) trust can.
For estates large enough to face federal estate taxes (currently $13.99 million per person according to Fidelity), community property with right of survivorship might not provide optimal tax planning. Wealthy couples often use bypass trusts or other sophisticated strategies to minimize estate taxes, and these strategies may require different property ownership structures.
The estate tax exemption is scheduled to decrease significantly in 2026 when certain Tax Cuts and Jobs Act provisions expire. High-net-worth couples should work with estate planning attorneys to structure ownership in ways that maximize exemptions and minimize estate taxes.
In some situations, joint tenancy offers better creditor protection than community property. If one spouse has significant creditor problems, the creditors' ability to reach jointly-held property varies by state and ownership structure. Community property can sometimes be reached to satisfy one spouse's debts more easily than tenancy by entirety (a form of joint ownership available only to married couples in some states).
If creditor protection is a concern, whether from professional liability, business debts, or other sources, you should consult with an attorney about which ownership structure best protects your assets while still achieving your estate planning goals.
Creating community property with right of survivorship requires specific language on your property deed. You can't establish it through verbal agreements or informal understandings. The title must contain clear, explicit language indicating this ownership structure.
I always recommend working with a qualified real estate attorney in your state to establish community property with right of survivorship. Each state has specific requirements for deed language, and mistakes can be costly. An attorney familiar with your state's requirements can draft the deed properly, ensure it's recorded correctly with your county, and explain the legal and tax implications.
The cost of hiring an attorney for this work typically ranges from $500 to $1,500 depending on your location and the complexity of your situation. That investment provides peace of mind that the deed is prepared correctly and will function as intended when needed.
While exact language varies by state, community property with right of survivorship deeds typically include phrases like:
California allows shorter language like "community property with right of survivorship" without additional qualifying language. Texas requires specific statutory language to create survivorship rights. Louisiana uses different terminology based on its Napoleonic Code heritage.
The deed must be signed, notarized, and recorded with your county recorder's office to become effective. Simply preparing the deed isn't enough - you must formally record it to change the legal title.
You can establish community property with right of survivorship at any time during your marriage, not just when you first purchase property. Many couples discover this ownership structure years into their marriage and decide to update their title through a new deed.
If you owned property before marriage and want to convert it to community property with right of survivorship, you're essentially making a gift of half the property to your spouse. This can have gift tax implications if the property is very valuable, though the unlimited marital deduction usually prevents actual gift tax liability. Still, you should consult with a tax professional before converting valuable separate property to community property.
A common source of confusion: How does community property with right of survivorship interact with your will? The short answer is that right of survivorship trumps your will for the property titled that way.
Your will controls property that you own at death and that doesn't have other transfer mechanisms. But community property with right of survivorship transfers by operation of law the moment you die, before your will even comes into play. The property never becomes part of your probate estate because it automatically transfers to the surviving owner.
This means you can't use your will to leave community property with right of survivorship to someone other than the co-owner. If you want to change who inherits that property, you need to change the title, not update your will.
This automatic transfer can create problems if your wishes change but you forget to update your title. For instance, you might divorce and remarry but never remove your ex-spouse from the title. Despite your will leaving everything to your new spouse, the property with right of survivorship will still transfer to your ex. These situations arise more often than you'd think, usually with unhappy results.
While right of survivorship property passes outside your will, you still need a comprehensive estate plan that addresses all your assets. Your will should cover property that doesn't have automatic transfer mechanisms. You should update beneficiary designations on life insurance, retirement accounts, and transfer-on-death accounts. And you should review all of these regularly to ensure they still reflect your wishes.
Many estate planning attorneys recommend creating a complete inventory of your assets and their ownership structures. This inventory helps ensure nothing falls through the cracks and that all your property transfers as you intend. Update this inventory whenever you acquire or sell major assets, experience significant life changes, or move to a different state.
For people who don't live in community property states or who want more flexibility, transfer on death (TOD) deeds offer another way to avoid probate for real estate.
A transfer on death deed (also called a beneficiary deed in some states) lets you name a beneficiary who will inherit your real estate upon your death. Unlike right of survivorship, you retain complete control during your lifetime. You can sell the property, refinance it, or revoke the TOD deed without anyone's permission.
The TOD deed only takes effect when you die. Until then, the named beneficiary has no ownership rights or interest in the property. You can change beneficiaries simply by recording a new TOD deed. This flexibility makes TOD deeds attractive for people who want to avoid probate while maintaining full control.
Currently, about 30 states allow transfer on death deeds for real estate, though specific rules vary by state. Some states restrict TOD deeds to certain types of property or limit who can be named as beneficiary. You need to check your state's specific requirements.
Transfer on death deeds offer advantages in certain situations:
However, TOD deeds don't provide the double step-up in basis that community property with right of survivorship offers. The beneficiary receives a single step-up to the value at your death, not a double step-up. For highly appreciated property, this difference can be significant.
TOD deeds also might not protect the property from your creditors as effectively as right of survivorship. The property remains fully yours until death, so creditors can potentially reach it to satisfy your debts. Right of survivorship property receives some protection because you own it jointly with another person.
Each community property state implements these rules slightly differently. Understanding your specific state's requirements prevents mistakes that could cost your family thousands.
California enforces community property rules rigidly. The California Courts website provides extensive resources on community property law. California presumes that all property acquired during marriage is community property unless you can prove otherwise with clear documentation.
California extends community property rules to registered domestic partnerships, giving same-sex couples and other domestic partners the same property rights as married couples. The state also recognizes "quasi-community property" for property acquired while living in a non-community property state that would have been community property if acquired in California.
California allows simplified language for community property with right of survivorship. You don't need extensive legal descriptions, just clear indication that you're holding property "as community property with right of survivorship."
Texas automatically treats property acquired during marriage as community property, but survivorship rights require specific language. Without explicit survivorship language, community property doesn't automatically transfer to the surviving spouse.
Texas law requires a written agreement between spouses to create survivorship rights in community property according to the IRS Internal Revenue Manual. The agreement must be signed by both spouses and clearly express their intent to create survivorship rights. Verbal agreements aren't enforceable.
Texas also allows spouses to designate separate property as community property through written agreements. These transmutation agreements let couples unify their property ownership if that serves their estate planning goals.
Wisconsin implemented its Marital Property Act in 1986, becoming the only Midwestern community property state. Wisconsin uses the term "marital property" instead of "community property," but the legal effects are similar.
Wisconsin's system includes unique features like classification periods that determine when property becomes marital property. Property acquired while both spouses are Wisconsin residents is marital property. Property acquired while residing elsewhere gets classified based on where the couple lived when they acquired it.
Wisconsin allows couples to opt out of marital property rules through marital property agreements. These agreements let couples customize their property ownership structure to fit their specific circumstances.
In my work helping families navigate these issues, I see certain mistakes repeatedly. Learning from others' errors can save you significant trouble.
Just because you live in a community property state doesn't mean your property automatically has right of survivorship. You must explicitly add that language to your title. I've worked with widows who assumed their husband's property would automatically transfer, only to discover they needed to go through probate because the deed lacked survivorship language.
Always check your actual deed language. Don't assume anything based on verbal understandings or what seems logical. The written title controls, period.
Keeping separate property separate requires discipline. Once you mix separate property funds with community property funds, courts generally treat everything as community property. That inheritance from your parents that you wanted to protect? Deposit it into a joint account, and it's probably now community property.
Maintain separate accounts for separate property. Document the source of funds when you make purchases. Keep clear records that track separate property through its various forms. This documentation becomes crucial if you later need to prove something should remain separate.
Divorce, remarriage, birth of children - all these life changes should trigger a review of your property titles. I've seen cases where someone divorced, remarried, and died years later still having their ex-spouse as the survivorship beneficiary on their home. The new spouse got nothing despite the deceased's clear wishes.
Set a reminder to review all your property titles, beneficiary designations, and estate planning documents every 3-5 years or after any major life event. This simple habit prevents costly mistakes.
Real estate law and estate planning involve complex rules that vary by state. Trying to save a few hundred dollars by doing it yourself can cost your family tens of thousands later. A properly prepared deed and estate plan provides invaluable peace of mind that everything will work as intended.
Work with qualified professionals: real estate attorneys for title issues, estate planning attorneys for comprehensive planning, and CPAs for tax implications. The modest cost of professional guidance is an investment in protecting your family.
Community property with right of survivorship provides married couples in community property states with powerful tools to protect their families. The combination of probate avoidance and tax benefits can save your loved ones significant time, money, and stress during an already difficult period.
According to the National Association of REALTORS® 2025 Profile of Home Buyers and Sellers, 88% of buyers purchased their home through a real estate agent or broker. For those purchasing in community property states, understanding these ownership structures from the start prevents expensive corrections later.
Families can save tens or hundreds of thousands of dollars in capital gains taxes just by using the double step-up in basis. When you add that to the fact that you can avoid probate, which saves an average of $22,500 to $52,500 and 20 months of court time, the benefits become too much for most married couples in community property states.
To take action, you only need to do a few things:
Good estate planning gives your family the peace of mind and protection they need. Don't let confusion or putting things off stop you from taking these easy steps to keep the people you care about safe.
The only way to be sure is to look at your actual recorded deed. Look for phrases like "community property with right of survivorship," "joint tenants with right of survivorship," or something similar. You should be able to get a copy of your deed from your county recorder's office, either online or by asking for one. Many counties now let you look up recorded documents online, which makes this research easier than ever. If you don't know what your deed language means, you should have a real estate lawyer look it over. Don't trust what people said when you bought the property or what you think the law says. The written deed is what matters, and even small changes in language can lead to different legal outcomes. Some title companies also offer services to help you understand how your ownership is set up right now and suggest changes if they are needed.
Yes, but in most cases, your co-owner will need to help you. Usually, you have to sign and record a new deed that changes the ownership structure in order to get rid of the right of survivorship. This new deed needs to be signed by both owners. If you're married and want to change your community property with right of survivorship to regular community property or tenancy in common, both spouses must agree and sign. Without your spouse's permission, you can't just take them off as a survivorship beneficiary. This keeps one spouse from secretly changing the title, which is good for both sides. But if you're getting a divorce, the divorce decree can change the title arrangements and tell you how to divide the property. Sometimes, estate planning means giving up survivorship rights on purpose so that property can go to children from previous marriages or other beneficiaries. Work with a lawyer to make sure that any changes to the title are done correctly and don't cause any tax or gift problems.
While not common, simultaneous deaths do happen in accidents or disasters. The Uniform Simultaneous Death Act is the law in most states that gives default rules for these situations. If you and your co-owner die at the same time or very close to each other, the law usually says that each person has survived the other for their own property. This means that your community property with right of survivorship would be divided in half, and each half would go to the person who made the will or followed the intestacy laws. Many couples put simultaneous death clauses in their estate plans to make sure that their property goes to the right people if they die together. These clauses often say that the property should go to their kids or other beneficiaries instead of letting the default rules apply. You might also want to set up a living trust that covers more situations in which both you and your spouse die at the same time than just a will. Planning for simultaneous death is especially important if you have young children. This will make sure they are taken care of and get the property you want them to have.
The creditor protection features of community property with right of survivorship differ by state and are contingent upon the type of debt. In most cases, creditors of a deceased spouse cannot force the sale of property held with right of survivorship to pay off the deceased's debts. However, they may be able to put liens on the deceased's interest. The surviving spouse's interest usually goes to them without any liens. But debts that the couple made together during the marriage can still affect community property after one spouse dies. If you both took on the debt, the creditor can probably go after all of your community property to pay it off. Some states offer more protection for creditors when two people own a property together, which is only available to married couples in some states. If one spouse has a lot of debt or is at risk of being sued for professional reasons, you should talk to both an estate planning lawyer and an asset protection lawyer. They can suggest ways to protect your creditors while still meeting your estate planning goals. These might include using trusts, exemptions, or other structures, depending on the laws in your state and your own situation.
No, only married couples or registered domestic partners in states that extend community property rules to domestic partnerships can have community property with right of survivorship. Unmarried couples can't use this type of ownership, even if they've been together for a long time and live in a state with community property laws. But unmarried couples can avoid probate and share property ownership in other ways. Joint tenancy with right of survivorship works for any co-owners, whether they are married or not, and automatically transfers the property when one of them dies. Tenancy in common lets unmarried couples own property together with certain shares, but it doesn't give them automatic transfer rights and does require probate. Transfer on death deeds, which are available in some states, let unmarried people name their partner as the beneficiary so they don't have to go through probate and still have full control over their assets while they are alive. Unmarried couples who want to avoid probate and keep their options open can also use living trusts. The absence of community property with right of survivorship underscores a distinction in legal treatment between unmarried and married couples, even within community property jurisdictions. This is one reason why some long-term unmarried couples decide to get married just for the legal and financial benefits it brings.
For married couples, community property with right of survivorship can actually help them get the most out of their estate tax exemptions. When the first spouse dies, only half of the value of community property is included in their estate for estate tax purposes, even though the surviving spouse gets all of the property. When the surviving spouse dies, they add the full value to their estate. This is mostly important for couples with a lot of money whose estates are worth more than the federal estate tax exemption. Fidelity says that in 2025, the federal exemption was $13.99 million per person. Most families won't have to pay federal estate taxes, so this worry doesn't apply to them. However, the exemption is set to drop a lot after 2025, when some parts of the Tax Cuts and Jobs Act end. It could drop to about $7 million per person. A lot more families could have to pay estate taxes if this happens. Estate planners often suggest bypass trusts or qualified terminable interest property trusts instead of simple right of survivorship for rich couples. These advanced strategies make the most of both spouses' exemptions and give them more control over how the money is finally distributed. Some states also have their own estate taxes, which have lower exemption amounts than the federal exemption. If you live in a state that has its own estate tax, you'll need to think about that when you plan.
You shouldn't have to refinance your mortgage just to add your spouse to the title, but you should let your lender know. Most mortgages have a "due-on-sale" clause that lets the lender demand full payment if the property changes hands. But federal law says that transfers between spouses do not trigger this clause. The Garn-St. Germain Depository Institutions Act protects transfers made because of divorce, separation, or death, as well as transfers where one spouse becomes the owner but the other spouse stays on the mortgage. That being said, you should look over your mortgage papers and write to your lender to let them know about the change in title. Some lenders might need your spouse to sign papers saying they are responsible for the mortgage, while others might only need to be told about it. Adding your spouse to both the title and the new mortgage is a great idea if you're already refinancing. If you put your spouse on the title but not on the mortgage, keep in mind that the property can still be foreclosed if you don't pay, even though your spouse now has a stake in it. Because of this, a lot of couples want both spouses to be on both the title and the mortgage for property they buy while they are married.
Tenancy by the entirety is a type of joint ownership that only married couples in some states, mostly on the East Coast and in the South, can use. In states with community property, it isn't available. Both types of ownership automatically transfer when someone dies and offer some protection from creditors, but they work in different ways. When you rent a property together, both spouses own the whole thing, not just half. Without the other spouse's permission, neither spouse can sell their interest, and creditors of one spouse usually cannot force the sale of property held as tenancy by the entirety to pay off that spouse's debts. Community property with right of survivorship gives you the double step-up in basis that tenancy by the entirety doesn't. In some cases, tenancy by the entirety might protect creditors better. The two types of ownership serve the same purposes, but they do so through different legal means. If you live in a state that has both options, you'll need to figure out which one works best for you. Most couples in states with community property will choose community property with right of survivorship because it saves them money on taxes. If their state offers it and they want to protect their creditors, couples in common law states may want to consider tenancy by the entirety. Some states don't offer either option, so joint tenancy is the only choice for married couples.
Yes, for sure. You can use community property with right of survivorship for any real estate, not just your main home. If you're married and live in a community property state, you can title your rental properties, vacation homes, raw land, and commercial real estate as community property with right of survivorship. The tax breaks can be even bigger for investment properties than for primary residences. Individuals can exclude up to $250,000 in capital gains on their primary residence, and married couples filing jointly can exclude up to $500,000. These exclusions don't apply to investment property, so the double step-up in basis gives you even more tax savings on rental property that has gone up in value a lot. For rental property specifically, the step-up in basis also eliminates depreciation recapture that would otherwise apply when you sell. When you sell, the depreciation you took while you owned the property lowers your basis, which raises your capital gains. The step-up, on the other hand, resets everything, getting rid of both the original gain and the depreciation recapture. This makes it a great way to pass on wealth to heirs by holding onto rental property until you die and then passing it on through community property with right of survivorship. Many real estate investors purposely build rental portfolios that they never plan to sell because they know that the step-up at death is the best way for their heirs to save money on taxes.
No matter how you originally titled your property, divorce changes who owns it completely. In a community property state, the court divides the community property between the spouses according to state law when they get a divorce. The divorce decree nullifies any survivorship rights that were in effect during the marriage. Once the divorce is final, the ex-spouses no longer have rights to each other's property, even if the old deed language stays the same. But you should definitely change all of your property titles, beneficiary designations, and estate planning documents after your divorce to reflect your new situation. If you forget to update the actual titles, don't count on the divorce decree to protect you. If you get property as part of the divorce settlement, make sure that new deeds are made and recorded that show you own it all by yourself. If you need to give property to your ex-spouse, do it quickly and with the right legal paperwork. Take your ex-spouse off of any life insurance, retirement accounts, or transfer-on-death registrations that name them as a beneficiary. A lot of people forget about these non-titled assets, which means that their ex-spouse ends up with things they never meant to give them. In some states, divorce automatically cancels beneficiary designations for ex-spouses, but not all states do this. Don't just assume; check and update everything. If you get divorced and then marry again, you and your new spouse will need to make new community property with right of survivorship deeds. Your old titles from your last marriage won't change on their own.
Fact Checked