Living in a Community Property State Does Not Automatically Protect Your Real Estate From Probate
and how this single inexpensive fix can save you thousands of dollars in probate fees.
By Melissa M. Murdock, Attorney at Law
November 1, 2021
Community Property 101
Washington and Idaho are both considered community property states. For those of you that are unfamiliar with that terminology, it is how a marriage can affect the title, or ownership, of assets. In general, community property states organize property into two categories: separate and community property. States like Washington and Idaho, which recognize community property, designate property earned while married, as an asset of the community. This means both have an equal, undivided interest in the entire asset. This also usually means that when one spouse passes away, the surviving spouse is entitled to the community assets. Many states vary from the strict interpretation of one rule or another so there will be distinctions you may need to be mindful of. Therefore, this blog is not to be used in lieu of a local attorney’s opinion in your jurisdiction.
Generally, for states that are not community property states, the title of an asset can control ownership. For example, if I purchased a car while married and the title to the car listed ownership in my name as Melissa Murdock, then I am the 100% owner of the vehicle. However, in Community Property states, like Washington and Idaho, if I purchased the vehicle using a bank account containing money that I earned while married, that is considered a “community asset.” The community designation of the funds in the bank account follows, through a process called tracing, to the new asset. It does not matter that the car only lists my name on the title. My husband also has an equal, undivided interest in the asset. This can hold true, even if my husband and I were to keep separate bank accounts, with our separate earnings. Yes, you read that right. If you think you are protecting your assets from an ugly divorce later on by having a separate account, you may be disappointed by the ability of a judge to designate the accounts as a community asset and split them accordingly.
This is just a basic understanding of community property. There are many different exceptions and details to understand when trying to determine if property is community in nature or the separate property of one. Some of these exceptions and issues are seen when reviewing gifts, market increases, and when separate and community assets are merged or “comingled.” If you have questions about whether an asset is community or separate in nature, it requires a close review of the asset and may require tracing it back to a bank account or when and how the funds were earned.
If you do not want to adhere to the default rules in Washington and Idaho regarding your community assets, you can choose not to and really should speak with an estate planning attorney to do something more. Without an agreement to the alternative, the default rules will likely apply, but it is all up to a Judge’s discretion.
When someone passes away (also known as the “decedent”), the legal term for that person’s assets owned at death is the Estate. Probate is the process in which one person is appointed the personal representative of a decedent’s estate. A personal representative receives the power to sign off for and manage an estate, from the Court. If there was a Last Will and Testament (“Will”), it would be filed with the Court, and the person nominated in the Will would ask a judge to appoint them. A Will only nominates an individual for the job, it does not give that person the legal authority. That is what a Judge does. When probate is opened, and a Judge signs off on the appointment of that legal authority, the Personal Representative receives what Washington State calls Letters Testamentary. This is the document showing the Personal Representative has the authority from the Court to sign off on property transfers and can manage the decedent’s assets in the estate. If there was a Will, they must follow the terms of the Will. If there was not a Will, Washington State has laws (including those related to community property) that dictate who receives what, if the decedent did not choose.
Washington and Idaho both have an affidavit process for passing assets worth less than $100,000.00 (in total) outside of probate. However, this does not work for real property, even if it is a vacant lot of land with little value.
Here is the distinction: Community Property States can give rights to a spouse to receive the asset, but not the legal right transfer the decedent’s portion of the asset.
Let’s say my husband and I owned some real property in Washington that was titled to in both our names. It was purchased while we were married with community assets. This clearly makes it community property. However, the deed is to us both. Let’s say I pass away, and my husband wants to gift the house to his brother. As a community property asset, he may do whatever he wants since he is entitle to it 100% at the death of the first spouse (me), but he will not be able to record the transfer because he has not received legal authority from the Court to sign off on my estate. This is because we have a deed that says to me, but I am not here to sign off on transferring that interest. Washington State counties, especially Spokane County, often require proof that a surviving spouse can sign, such as by providing letters testamentary.
Avoiding Probate – Several Options
Because of how expensive probate can be, (expect to pay thousands of dollars, not hundreds) many people wish to avoid probate. There are several different ways to do that, such as properly establishing a trust or possibly using that affidavit process discussed above. However, in my experience, it was always the deeds that ruined a good estate plan with a trust that intended to avoid probate. If you are looking to avoid probate as a married couple without establishing a trust, one simple change in a deed (usually costing less than $500.00 in total to record) could be the solution. If you can get the property to transfer automatically as an operation of law, without needing legal authority to sign off, then that would do the trick. One solution is to establish a deed with the right of survivorship, a strongly disfavored method of holding real property in the Court system, but one that would avoid probate. I have personally used national mortgage and title companies and seen them designate property as joint tenants (without survivorship) or as community property. However as previously discussed that only offers information regarding ownership rights, not transfer rights. Without the authority to sign off, the right to have the property is not enough.
If you have more questions about the community property and right of survivorship options available to you, meet with a real property attorney to discuss those options available to you in your state’s jurisdiction.