Moving from the West Coast to Pennsylvania? You May Need to Update Your Will!

By: Buneka J. Islam, Esq. & Kathleen A. Maloles, Esq.

Community property is a property ownership regime applicable in a minority of states in the United States. These states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In a community property state, all property that comes to a married couple after their marriage, except for gifts and inheritances, are owned equally by the couple, regardless of how the property is titled. Thus, when one spouse passes away, the surviving spouse automatically receives the deceased spouse’s share of any property acquired after the couple married. In contrast to separate property states, (also known as equitable ownership jurisdictions), property that is acquired by a married couple remains the property of the spouse who acquired it, and the title to the property will control ownership.  Community property is most relevant in the context of divorce, where it will determine the division of marital assets; however, there are issues with community property ownership in the context of estate planning.

An interesting feature of community property ownership in the context of estate planning and administration is that is offers a unique benefit tax benefit that is not available to separate property ownership. Although only the deceased spouse’s share of the property is includible in the gross estate of the decedent (as is the case in separate property states), the entire property is treated as having been transferred from the deceased spouse. Thus, the entire community property receives a step up in basis, compared to separate property, which only receives the step up in basis for the decedent’s share of the property.

When a couple moves from a separate property state to a community property state, the community property state will often apply a “quasi-community property” regime to any property acquired prior to domicile in the community property state. In general, separate property that would have been community property if the couple had been residing in the community property state when the property had been acquired is treated as community property for the purposes of transfers upon death.

When a couple moves from a community property state to a separate property state, such as Pennsylvania, generally the courts will apply community property rules to community property. However, there is very little case law on this topic in Pennsylvania, so it is best to plan your estate to ensure that the property is transferred to surviving spouse on the death of one spouse. A common mistake made by couples moving from community property states to separate property states is to retitle property as jointly held. This has the unintended effect of eliminating the full step-up in basis benefit discussed above.  It is also unclear how Pennsylvania treats property that is classified as quasi-community property in a community property state, once the couple moves back to a separate property state.

Community property regimes also make it more difficult to disinherit a spouse, as the surviving spouse automatically receives half the property held in community property. A spouse may bequeath both spouse’s share to community property to a third party in his or her will, however, the surviving spouse may still elect to take his or her share against the will. Further, for example, under California state law (a community property state), if a married couple owns separate property California (i.e. property owned prior to marriage), and one spouse dies while a resident of another separate property state, then the surviving spouse may still elect to take her elective share of the separate property located in California as if the property were located in the state of residence, despite a will stating anything to the contrary. Thus, if a California couple owning separate property in California moves to Pennsylvania, then the surviving spouse may receive the elective share in that separate property in accordance with applicable Pennsylvania statutes, even if the deceased spouse otherwise disposed of the property through his will.

If you have moved from a community property state to Pennsylvania and you wish to ensure you continue to receive all the benefits of community property, the estate planning attorneys at Maloles Law, LLC can assist you with reviewing your current estate plans.  The lawyers at Maloles Law, LLC provide estate planning services for families and individuals in the following Pennsylvania Counties:  Philadelphia County, Bucks County, Delaware County, Montgomery County and Chester County.  For more information, contact the estate attorneys at Maloles Law today at 215.600.1362 for your no-obligation initial consultation, or visit our website at www.maloleslaw.com.

DISCLAIMER: This article is not intended to be used as legal advice. Please contact a qualified attorney.  Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Maloles Law, LLC and the user.

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