Everything we own in life must be distributed among the living in death. There’s very little you can take with you into the afterlife, by law – and multiple unique processes are in place for supervising the accumulation, valuation, and eventual distribution of a person’s belongings or estate after death. One of these properties in place is community property with right of survivorship.
But what happens when property is jointly owned or owned partially by someone else? What happens in states where spouses get half of everything? And how can you avoid the ubiquitous probate process on the property you want to pass on to your descendants?
If you live in one of the nine community property states in the US, then one way to bypass probate and simplify the process of passing property onto a surviving spouse, for example, is through a right of survivorship clause. Let’s dive deeper.
What is Community Property?
Owning property in California can be done one of two ways: as separate property or as community property. The latter is only relevant if you are married, as California is one of nine community property states where anything owned or obtained by marriage becomes jointly owned as community property between both spouses. It doesn’t matter whose bank account it is, and it doesn’t matter whose name is on the deed. You both own that home, and you both own the income you make together.
Other notable exceptions exist, such as gifts made explicitly to one party or inheritance. You can also use a prenuptial agreement to exclude specific properties from community property.
Community property matters because it affects who gets what in death and life. When a marriage ends – either through death or divorce – community property plays a significant role in how property is ultimately split between both parties or distributed to one.
All in all, it is a simple affair. Yet, despite its simplicity, community property still passes through probate, at least if it is just community property. There are a few things you can do to bypass probate with properties jointly owned in marriage.
First, a better way of understanding community property is to understand that anything you own with a spouse is in two shares. You own your share, and your spouse owns theirs. When you die, your spouse automatically retains everything they already had (i.e., half) – but you retain the right to dedicate your half to someone else, such as your children. You can use a will to ensure that half of the money you own and half of your property goes to someone other than your spouse.
But even if you plan things to go as smoothly as possible by having your spouse inherit your half, that half must still pass-through probate, which takes time – and, depending on the size of your estate, a lot of attorney fees. This is where a right of survivorship clause can help.
Understanding the Right of Survivorship
A right of survivorship is an additional classification on a title or deed that conveys how to distribute it after death. As the name implies, the right of survivorship gives the remaining tenant or owner on the deed the decedent’s share, no ifs and, or buts – and no need for probate.
In the case of community property with no additional provisions, probate kicks in to figure out how to distribute the decedent’s share. But a right of survivorship is an explicit provision, meaning there is no need for that property to pass through probate.
Ultimately, the probate process supervises decision-making while evaluating and distributing a decedent’s belongings. The probate process becomes smaller when you make more decisions – through trusts, beneficiary designations, and provisions such as the right of survivorship.
A right of survivorship ensures that the decedent’s share immediately goes to the survivor’s share after death. The right of survivorship is not exclusive to community property or married couples. Right of survivorship is also applicable in joint tenancy and tenancy by the entirety. A joint tenancy is an arrangement through which two parties purchase an equal share of a property to own it together.
Tenancy by the entirety, on the other hand, is the process by which a married couple can buy a property as a single legal entity rather than two separate parties. Again, as with community property, both have an equal share of interest in the property. Tenancy by the entirety is more interesting for married couples in separate property states.
Other Methods of Avoiding Probate
Adding a right of survivorship onto a jointly owned property can immediately transfer it into the survivor’s ownership. But that is not your only option for minimizing or avoiding probate for select properties.
Beneficiary designations are another powerful tool. You can create these provisions or deeds for properties and bank accounts, also known as transfer or payable on death deeds. Through these, you can name a beneficiary to transfer your property to after death without probate.
Not all properties or accounts are eligible – but quite a few are. Speak with an estate planning professional to learn about beneficiary designations and whether you can make the most of them.
Living trusts are another popular way to minimize probate. A living trust is an entity that a trust document defines and creates. Unlike a will, a trust goes into effect upon creation. Through a trust, you create an entity you can fund items into while retaining control (through a revocable trust) or completely cutting yourself off (through an irrevocable trust). The contents of a revocable trust still count towards the total value of your estate but don’t go through probate. This is as long as you instruct your trustee on managing and eventually distributing the contents after your death.
There are benefits of permanently separating yourself from your property through an irrevocable trust. One is that it no longer counts as part of your estate for tax purposes and asset protection.
Estate plans can be versatile, with the help of tools like a right of survivorship clause, beneficiary designations, and trusts. It’s important to match these tools to your individual needs and circumstances. Discuss your estate plans with a professional at Werner, located in Santa Barbra, Santa Clarita, Simi Valley, or Westlake Village.