In a community property state, spouses share and share alike. Half of what you make during the marriage belongs to your spouse, and half of what she makes belongs to you. There are exceptions, such as money or property one of you receives as a gift or inheritance. Whether community property is in a trust or not doesn't usually affect how it's passed on after death.
Property in Trust
Putting property in a living trust doesn't change its status. If it's separate property, it stays separate; if it's community property, it's still community property. You can transfer your portion of community property into a trust, just as legally as you can place your separate property in a trust. If you and your spouse set up the trust together, you can both put your community property in trust. The community-property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Death and Division
The different states don't have uniform laws on what happens to community property at death. If your spouse dies, the default situation for your state may be that you're entitled to just your half of the property, or both halves, or it may depend on how many children you and your spouse have. If your spouse bequeaths his half to someone else through a will or a trust, that usually trumps the default rules -- although you may want to contact an attorney to learn what happens in your own state. If you and your spouse have a joint trust, the property stays in the trust until you both pass on, then goes to the beneficiaries you've designated.
Debts and Obligations
You won't be the only one looking at the trust's assets. Trusts bypass probate, but your spouse's trust is still part of her estate. Your spouse's creditors can sue to get some of the money, and that trumps any rights you have to the property. Only after the debts, including taxes and funeral expenses, are paid off are you entitled to your share. If your spouse rung up the bills during marriage, the creditor may even be able to access your share of community property to pay off the community debt.
Your spouse can bequeath his own separate property however he wants, but it's not always easy to keep separate property separate. If your spouse owned a house when you married but spent lots of marital income maintaining or improving it, that can turn it into community property, for instance. That may give you a claim to certain trust assets when he dies, depending on state law. Again, it may take an attorney to figure out which property you have a marital claim on.
- How to Set Up a One-Income Family Budget
- How Can I Refi My Jumbo Loan?
- Financial Planning Questions for the First Client Meeting
- If a Foreclosed Property Has Been Sitting Empty for a While, Will the Bank Take Less for It?
- How to Sell My Home to an Investor
- What Does It Mean When a Loan Matures?
- How to Handle Recurring Payments
- Setting Up a Budget Spreadsheet
- Setting Up a Budget Plan
- How to Set Up an Escrow Account for the Construction of a New Home