Law Offices of Will Morris

Law Offices of Will Morris


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Showing 2 entries categorized by Intestacy

Community Property – The Brady Bunch

Texas is one of only eight “community property” States in the US, with two other States having community property principles.** 

Community property is a matter of marital law and although it’s comparison with separate property is most often associated with marriage and divorce, this discussion is primarily concerned with the impact it has upon the death of a spouse, particularly among blended families.  When a married person dies without a Will (intestate) the distinction can become acutely tragic.  A surviving spouse may be surprised to learn that they own only one-half (or less) of an asset they have enjoyed throughout a marriage – particularly when the other one-half is then owned by the children, parents, or siblings of the deceased spouse. 

The Brady bunchHowever, for even the happiest of Brady Bunch families, the proverbial elephant in the room cannot be ignored.

Without appropriate planning, a surviving spouse can experience undesirable and sometimes draconian results that neither spouse intended. 

The blended family dynamic may also include a disparity between separate property assets, a family business, and the relative ages and needs of children – his, hers, and ours.  

Even without children, one spouse may own substantial assets as their separate property.

Quite candidly, in the traditional one and only marriage, children by the same marriage, collegial family dynamics, the accumulation of substantially all assets during a marriage, and traditional considerations for disposition of property at the death of a spouse, the details of community property may simply operate in the background, without further concern. 

This article is written as a basic primer touching on a few general concepts for married couples living in Texas, moving to Texas, or moving from Texas to a non-community property State -- it is not a substitute for a consultation with an estate planning attorney but is instead intended to raise your level on inquiry.

It is possible that a husband and wife have enjoyed, used, and benefitted from all of the assets within a marriage as one family unit without distinction.  However, looming beneath the surface there are three different types of asset ownership – (i) community property owned 50-50 between spouses, (ii) separate property owned 100% by the husband, and (iii) separate property owned 100% by the wife.

Community property is best understood by looking at both what it is and what it is not - with an understanding that there is strong presumption in favor of community property in a marital relationship.  Generally, if there is a dispute among spouses or heirs, the burden of proof is on the parties asserting that certain property is separate property.

What it is – As a general rule all property acquired during a marriage is considered community property, even if the title to the property is in the name of only one spouse.  It is not the title that controls, but the timing of when the asset was acquired.  Each of the following are considered community property:

  • Compensation earned during a marriage.
  • Property purchased with community property funds.
  • Income, dividends, interest, and capital gains earned on community property.
  • Income, dividends, and interest earned on separate property.

What it is not – The Texas Constitution – Article 16, Section 15 outlines the characterization of separate property to include:

  • Property acquired prior to a marriage.
  • Property acquired by gift, after marriage.
  • Property acquired by inheritance after marriage.

Estate Planning Concerns for Married Couples Dying Without a Will or Plan

  • Community Property does not presume a right of survivorship to spouse. Each spouse only owns 1/2 of community property assets.
  • Community Property, no children – all to surviving spouse.Community Property with all children of current marriage – all to surviving spouse.
  • Community Property with children from a prior marriage – surviving spouse will receive 1/2 and children by prior marriage will receive 1/2.
  • Separate Personal Property with children– 1/3 to surviving spouse – 2/3 to children of deceased spouse.
  • Separate Real Property with children– 1/3 life estate to surviving spouse – remaining 2/3 life estate and remainder ownership to children of deceased spouse.
  • Separate Personal Property, no children – All to surviving spouse
  • Separate Real Property, no children – 1/2 to surviving spouse – 1/2 to mother/father and/or brothers/sisters of deceased spouse.

Topics For a Later Discussion – Or to Ask Your Attorney Now

  • Tracing – Applies when Separate Property and Community Property are commingled.
  • Inception of Title – Property retains its character based upon (i) when acquired and (ii) character of funds used to acquire.
  • Separate Property Family Businesses –
  • Claims for Reimbursement – Texas Family Code Section 3.401, et seq.  Applies when community property funds enhance or pay debt on separate property and vice versa.

And, In Conclusion – Since this discussion is intended for the uniformed or barely informed client and not a legal treatise for attorneys or other planning professionals, I trust that sufficient awareness and in some places concern, have been raised. 

The call to action is to schedule consultation with an estate planning attorney and implement the necessary strategies to minimize or eliminate potential problems that might arise at the death of a spouse.  Any one or more of the following strategies may be used manage expectations and avoid surprises.

  • Wills and Trusts – Spouses by designate the distribution and management of both community property and separate property to each other, to children, or to third persons as they desire.  No surprises.
  • Pre-Marital Property Agreement (Pre nup) – Prior to marriage parties can agree on character or property as community or separate.  Although commonly thought of in terms a divorce, applies equally to estate planning.
  • Marital Property Agreement – Partition or Exchange of Community Property (Post-nup) – After marriage husband and wife can agree that community property will become separate property, including the income from that property.  May be used for estate tax planning and funding of irrevocable life insurance trusts.
  • Agreement to Convert Separate Property to Community Property – After marriage a husband and wife may wish to own everything equally.  Requires a formal agreement, simply adding a spouses name to a title is not sufficient.

** The other States are Arizona, California, Idaho, Louisiana, Nevada, and Washington.  In recent years Wisconsin has adopted the Uniform Marital Property Act which resembles community property laws.  In addition, Alaska has created a system that applies community property principles for Federal income tax purposes, but I don’t think about Alaska much.

© Will Morris, JD, LLM 2014


What if I Die Without a Will? - Intestate Succession

A person who dies without a Will or has not provided for the disposition of their property by trust or other contractual means is said to have died “intestate”.  To fill the gaps created by those who have not voluntarily controlled a plan for themselves, the State of Texas essentially writes a Will and prepares a generic estate plan for them.  I call this the “Texas Plan”.

The Texas Plan can have particularly traumatic results for (i) blended families, (ii) couples living together in a committed relationship but not married, (iii) unmarried couples owning real property in just one person’s name, (iv) married couples owning both community and separate property, (iv) children with special needs, and (iv) single persons with no children. 

The Texas Plan assumes strict statutory preferences, taking into consideration - a person’s marital status, children of current and prior marriages, and characterization of property as community or separate.  The Texas plan does not include any tax considerations or benefits that may have been intended a spouse or significant others.

Since a house is often the most personal and significant asset, the following situations illustrate how the Texas Plan created dramatic unintended consequences.

  • A couple is married and owns their house as community property and have children by a previous marriage- Very few houses in Texas are owned “with right of survivorship” – even if community property.  Upon the death of one spouse, the surviving spouse will own one-half of the house and the deceased spouse’s children will own the other one-half of the house.  
  • A couple is married, but one spouse owned the house before the marriage (separate property).  If the spouse owning the house is the first to die and has children by a prior marriage, the surviving spouse is only guaranteed a 1/3 life estate in the house, but the children from the deceased spouse’s prior marriage would own 100% the house upon the surviving spouse’s death.  If the deceased spouse has no children, the surviving spouse will own 50% of the house and the deceased spouse’s parents and/or siblings will own the other 50%. 
  • An unmarried couple live together and one person buys a home in their name only (separate property).  If the person owning the house is the first to die, the house will pass to that person’s parents and/or brothers and sisters.  The other person will own no interest in the house.  This is a common situation when one person in a relationship has better credit or greater income. 
  • An unmarried couple purchases a home as joint tenants (50-50 ownership) Upon the death of one person the survivor only owns 50% of the house and the deceased person’s parents and/or brothers and sisters will own the other 50%.

Even in a traditional family setting the Texas Plan will not achieve the goals that most people would craft for themselves to (i) ensure privacy, (ii) minimize or avoid probate, (iii) select guardians for their children; (iv) designate agents to make health care decisions or end of life decisions (v) select guardians for themselves during any periods of incapacity, (vii) plan for the disposition of bodily remains (vii) ensure asset distribution in line with personal intentions, (viii) minimize or avoid family disputes, (ix) minimize or avoid the risk of unintended consequences, and (x) to the extent possible or necessary, to minimize or avoid Federal Estate Taxes.  

If you currently have the generic Texas Plan and are still alive, you should consider opting out and have a custom plan prepared for you that preserves your legacy and meets the unique needs of your family.

 

© Will Morris, JD, LLM 2014

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