Taking Care of Mom and Dad: Community Property
The term community property often comes up in discussions about estate planning (and divorce). It is a form of property ownership -- solely between husband and wife -- recognized in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. (The other states are common law states, using a different set of laws regarding marital property ownership.)
Specific community property laws differ greatly among these states, but the defining feature is this: Irrespective of the names on title documents, ownership of (almost) all property -- including income from wages and self-employment -- acquired during marriage by either spouse is automatically split, so that each spouse owns a separate, undivided half interest.
In terms of community property, an undivided interest is one in which each spouse has half ownership of the whole pie, rather than full ownership of only half of the pie.
Property acquired by a spouse separately and brought into the marriage remains separate. Property acquired by gift or inheritance or in exchange for separate property or money, also remains separate. The income, if any, the separate property produces is treated differently. In California, for example, separate property income remains separate property; in Texas, however, income produced by the separate property of one spouse becomes community property.
Each spouse is free to dispose of his or her half of community property in a will. It does not automatically pass to the survivor, as it would if owned jointly, with right of survivorship. Of course, the deceased spouse's federal taxable estate contains his or her half of the couple's community property.
Community property issues, like so many estate planning issues, usually come up if your parents have been married more than once. In these cases, you should be careful about any advice you give your parent (and stepparent) -- especially if it affects resources that might be inherited by your stepparent's children.
