“Community Property” and Estate Planning
Washington State is a community property state. Most of the time that designation has no effect on your life. You can buy and sell whatever you want, move wherever you want, and do whatever you want.
But it does matter sometimes in a HUGE way.
Joey and Madeline and Community Property
Joey and Madeline are both two nice, normal people. They are in their early 40’s and have just married. They are having the time of their life, having just bought a house together.
Like many people today, Joey and Madeline’s marriage created a blended family. Joey has two kids from a previous relationship and Madeline has one.
Joey and Madeline talk about what they want to happen when either of them passes away. They decide Madeline’s kid should get the house and Joey’s kids will get everything else.
Madeline creates a will leaving her child everything including the house. Joey creates a will leaving his kids everything but the house.
This is outlined in their will and they fully expect those wishes to be followed.
But they won’t, at least not the way they want, because Joey and Madeline live in Washington State, a community property state.
What “Community Property” Means
Community property is any property acquired by a couple during their marriage (marriage and domestic partnership are used interchangeably here so I don’t have to keep referencing both).
It includes the following:
- All earnings during marriage of the wife;
- All earnings during marriage of the husband;
- All property acquired with earnings during marriage; and
- Any property acquired with “community funds.”
The things that aren’t included are property received by gift, bequest, devise, or descent (the last three are if someone leaves it to you specifically after they die).
Other property not considered community property is property you owned before you moved to a community property state (for example, if you were married in Oregon, bought a house, and then moved to Washington, keeping that house, the property earned by the wife is hers and the property earned by the husband is his).
Why is this Important?
It is extremely important because it can have a dramatic effect on where your property goes when one spouse passes away.
Let’s get back to our example with Joey and Madeline. Even though both Joey and Madeline wanted the house to go to Madeline’s child when they both passed away, and everything else to go to Joey’s kids, what actually would happen is much different.
Because we are in a community property state, when Madeline died her half of all of the community property went to her kid. That means she immediately got half the house, half the car, half the joint bank account, half of everything that was considered community property.
This may or may not have helped Madeline’s kid out but Madeline would likely not be happy with that outcome because it was not what she wished to do and the execution of that wish is going to put a significant financial hardship on Joey.
The lesson here is to make sure you are fully informed not just on what you want to do with your property but what the right way is to actually make what you want to have happen actually happen.
P.S. Do you have kids? Have you completed guardianship paperwork? Have you done it correctly? Click here to find out what happens if you don’t do anything: Are you okay with a judge choosing the guardians of your children?
P.P.S. Do you own a business? Do you have a plan so the business, and your family, can survive if something happens to you? If not, click here to learn how simple it is to protect your business and your family from tragedy: 5 Ways to Protect Your Business from Catastrophic Failure.
P.P.S. Do you have no kids and think you don’t need an estate plan? Single and think a will is only for married couples. You couldn’t be more wrong. Click here to learn more: 5 reasons estate planning is a must have even if you don’t have kids.
Christopher Small is a Kirkland estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.