By Beau Ruff

Property owned by a

spouse does not automatically transfer to the surviving spouse at death.

Instead, something more is needed in the estate plan to accomplish this feat.

In all the complexity

of the estate plan, the community property agreement is one document in

particular that offers simplicity, and yet still is a powerful component to an

estate plan. It can be drafted on a single page and contain fewer words than

this column. And, it provides (in this author’s opinion) the simplest, most

cost effective and powerful method to transfer assets between spouses at death.

“But Washington is a

community property state, so why do I need a community property agreement?”

Great question.

The fact that

Washington is a “community property state” carries with it a specific meaning.

It means generally that all property acquired during marriage is community

property, and it is owned one-half by each spouse. All property acquired either

before marriage or during marriage but by gift or inheritance remains “separate

property” (i.e., not community property).

This is all that it

means when we say colloquially that Washington is a community property state.

It’s a statement as to the character or nature of the property acquired by a

married couple. It does not mean that the surviving spouse has an interest in

all the property, and it does not mean that the surviving spouse is

automatically entitled to the property at the death of the first spouse. It

does not mean that the property vests in the surviving spouse automatically.

The law requires something more to accomplish all this.

The concept of

community property comes from Spanish civil law and is relatively unique in the

United States. Just nine of the 50 states are so-called community property

states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas,

Washington and Wisconsin.

Most of those states

are located in the western United States where the law was established likely

for a couple of reasons. First, it was likely an enticement for women to move

to those states (lured by joint ownership of assets). Second, it was likely

established out West because those states that included community property

concepts in their constitutions adopted them later than eastern states and

during a time when women’s rights were advancing nationally.

The community

property agreement is between spouses concerning the character and disposition

of community property. It is specifically authorized under Washington law and

codified under RCW 26.16.120. It typically adds two important prongs to the

general community property law outlined above.

First, it provides

that the spouses agree that all property acquired at any time be treated as

community property. Even though a portion of a couple’s property may have been

acquired before marriage or by gift or inheritance and therefore not

technically community property, the couple are agreeing that it shall

nonetheless become community property in character. So, the first prong changes

all property, whether separate or community, into community property. The

second prong says that at the death of the first spouse, all community property

shall automatically vest in the surviving spouse.

The community

property agreement provides the means to accomplish what most people understand

the basic community property laws provide: the vesting of all property in the

surviving spouse upon death.

This agreement is not

right for everyone, however. It does not work well for couples who have an

estate subject to the estate tax (for 2019, those are estates valued at greater

than $2.129 million for purposes of the Washington estate tax).

It

also doesn’t work well if the couple are planning on implementing specific

creditor protection strategies in the estate plan. And, because it necessarily

gives all assets to the surviving spouse, it doesn’t work where the plan is to

not give all assets to the surviving spouse. For example, where a person has

specific gifts outlined to children or where the couple has a blended family

(think second marriage with “his,” “hers” and “ours”) and wishes to preserve

the interests of the biological children in their inheritance, then the

community property agreement may not work best. 

But for the average couple that simply wants all assets to go the

survivor, the agreement could be the best way to transfer assets.

Of course, it is always best to seek the advice of a skilled estate planning attorney to figure what works best with your unique set of facts. But don’t feel put off by the complexity of the estate planning documents or the estate planning process. It is important to have the estate plan in place and it need not be an arduous process, especially if the community property agreement is included.

Attorney Beau Ruff works for Cornerstone Wealth Strategies, a full-service independent investment management and financial planning firm in Kennewick.