How Community Property Is Distributed in Estate Probate

In Arizona, property acquired by either spouse during a marriage is presumed to belong to both spouses equally. This “community property” doctrine can affect not only how assets are divided during a divorce but also how they are distributed upon the death of one of the spouses. Assets that are considered separate property are not subject to the same treatment.

Community property includes most assets acquired during the marriage. It can consist of real estate, cash, vehicles, business holdings, bank accounts, investment accounts, retirement accounts, pensions, wages and valuables such as jewelry and artwork.

Separate property, on the other hand, is any asset acquired prior to marriage or after the marriage ended. It includes gifts or inheritances received by one spouse, even during the marriage. It is possible, however, for separate property to become community property if it is commingled (combined and used jointly by both spouses) or transmuted (formally transferred in part to the other spouse).

If an asset is considered community property, it cannot be transferred in full to anyone except your spouse in a will or a trust. Only up to half of the ownership may be transferred to another person.

Community property passes upon your death in one of two ways, depending on these terms of ownership:

• With right of survivorship — If both spouses hold the property as “tenants by the entirety,” then the surviving spouse takes full ownership of the property. This is useful for keeping the asset solely within the surviving spouse’s hands. Another benefit is that the asset does not go through probate, which saves time and money.
• Without right of survivorship — If the community property is in only one spouse’s name, or if the deed or title does not specify a tenancy by the entirety, then the surviving spouse retains a one-half interest in the property, just as he or she would keep in a divorce. The other half interest goes to the deceased spouse’s estate and is distributed to his or her legal heirs or to beneficiaries designated by the will or trust. 

You can control how community property is transferred by you and your spouse creating a joint trust. This gives the surviving spouse control over the trust assets during his or her lifetime. Upon that spouse’s death, the assets could remain in trust for specified beneficiaries or could be transferred to them outright.

A knowledgeable and experienced estate planning attorney can assist you in using wills, trusts and other methods to distribute assets in accord with your objectives.

Jeffrey P. Hall, PLLC helps clients throughout the Phoenix metropolitan area in all aspects of Arizona estate planning. To schedule a consultation, call 480-409-5174 or contact us online.