Community property ownership also provides another estate tax planning advantage over separate property. Unless specifically provided for, a community property spouse has no survivorship rights, other than a homestead. The deceased spouse’s half of the property may be transferred to a tax-sheltered Family Trust without the risk that the transfer will be defeated by an automatic transfer to the surviving spouse. This is contrary to a separate property system where if a couple owns property in both names, the surviving spouse automatically owns all such property. The unfortunate result is that no property remains to be transferred to a tax-sheltered Family Trust. Couples intending to reduce estate taxes in separate property states must carefully weigh the estate tax consequences of joint tenancy ownership of property.
A final benefit of owning property in a community property state is that individuals living there can choose for themselves which property system they desire for part or all of their property. They can classify their property as community, separate, or a mix of the two depending on their individual circumstances and desires. These options may best be handled by creating a Community Property Agreement when permitted under state law.