Articles

Community Property Agreements

Let's say that you and your spouse have a nice, uncomplicated marriage. You have a little bit of real estate, a few stocks and bonds you have accumulated over the years, a couple of cars, and some furniture and appliances. You are not millionaires, but you have a comfortable middle-class existence.

You have already signed a couple of simple wills, but you are wondering whether there is a simpler way to provide for each other if one of you should die. For example, you may wonder, why can't the two of you just make a simple one-page agreement that says that whoever dies first will leave all of their property to other spouse? Too bad the law can't be that simple.

Surprise! It really is simple. Here's one example of a quick, simple and uncomplicated solution to a common legal problem - how can an average married couple provide for each other without spending too much for the legal fees and taxes sometimes involved in probate?

The last several weeks we have discussed wills, trusts, and probate. This week we'll talk about a CPA - not your accountant. It's a "Community Property Agreement".

There are two types of CPAs. The first one deals with the situation above. It simply provides that upon the death of one spouse, all of the community property becomes vested in the surviving spouse. There is no mess and no fuss. The surviving spouse does not have to file a probate proceeding; the deceased spouse's one-half of the community property is now owned by the surviving spouse. In other words, all of the property that was formerly community property is now owned by the survivor.

Community property agreements must be signed with some legal formalities, including a signature by both spouses and acknowledgement by a notary.

The community property agreement described above does not convey separate property to the surviving spouse such as gifts, inheritances, and separate property held by the decedent's spouse prior to the marriage. However, a CPA can be drafted with also converts all separate property of both spouses to community property. In such a CPA, the agreement simply states that all property owned by both spouses is now community property; and then also provides that the community property of the marriage will be transferred to the surviving spouse will be transferred to the surviving spouse upon the death of one of the parties.

Community property agreements can be revoked only by a written document, signed and notarized by both marriage partners. If at the time of death one of the spouses has a will which is inconsistent with the CPA, the CPA will take priority. If both spouses die simultaneously, as in a car wreck, they will both be intestate unless they also have a will. For that reason, lawyers usually advise that clients who want a CPA also execute a proper will.

It is possible that a community property agreement, especially if it is prepared without knowledge of the existence of prior wills, can sometimes cause unintentional results which are contrary to the wishes of the deceased. In addition, a CPA may lead to the loss of a unified estate tax credit if all property passes under joint tenancies with the right of survivorship. For these reasons, the community property agreement and wills should all be discussed and analyzed at the same time by both spouses and their lawyer.

Obviously, since community property agreements apply only to married couples, a CPA would never be used by someone who is single. Therefore, if you executed a CPA during a marriage which has since been terminated, you will obviously need to see a lawyer.