The Community Property Agreement is the classic alternative for a husband and wife to transfer real estate in Washington State to avoid probate. It works equally as well for any spouses who are Washington State property owners, whether they are U.S. Citizens, U.S. Tax Residents, and/or Canadian Non-U.S. Residents.
As Washington is a Community Property State, all property acquired during marriage is presumed to be community, and therefore, owned by the husband and wife. It does not matter is the spouses are non-residents of Washington but as long as they acquire property located in Washington during their marriage it is deemed community property. Spouses may enter into an agreement concerning their community property, including Washington real estate, which is then owned by them, or acquired in the future, to take effect upon the death of either. The net effect is to transfer Washington real estate upon the passing of one spouse to the surviving spouse. And likewise, the Agreement can achieve the same result for U.S. Citizen, U.S. Tax Resident and/or Canadian Citizen and Non-U.S. Resident spouses who own Washington State “community” real estate.
The right or interest transferred under a Community Property Agreement is a non-probate asset, and outside of a Washington probate.
Pros
- Well-recognized as Washington is a Community Property State.
- Non-Taxable with the IRS until Death (and upon death only if subject to U.S. Estate Tax).
- Exempt from Washington State Real Estate Excise Tax.
- Merely record the Agreement and Death Certificate after death of either spouse subject to estate tax compliance if any. The Agreement may be recorded before death if desirable.
- Prevails over a later inconsistent Will.
Cons
- Only beneficiary is the other spouse. It does not cover a transfer to children or other contingent beneficiaries.
- Simultaneous death of the spouses defeats the Community Property Agreement.
- Should coordinate with your Will and Estate Plan to avoid any conflict.
- Real Estate still subject to possible creditor claims.
- Both spouses may be required to sign documents regarding the real estate.
- Both spouses would be required to sign to rescind or cancel the agreement unless divorced.
- As the surviving spouse receives 50% at death, he or she gets a full 100% basis for future taxable events.
- A common law relationship will not suffice as a valid marriage is required.
Further, other non-probate methods may also be considered, including a Trust, Joint Tenancy with Rights of Survivorship, and Tenancy in Common. I recommend you read my blog article about the Transfer on Death Deed (“TODD”), because this non-probate method may be more advantageous.
With any of the above non-probate alternatives there may be U.S. Estate Tax reporting obligations. A U.S. Estate Tax Return may have to be filed. And it may be necessary to obtain a transfer clearance certificate from the IRS upon death prior to transferring the real estate.
The above is not intended to be legal advice but is general information provided as a courtesy.
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