If you are married, whether your property is community or separate affects what you can leave, who receives it, and how it is taxed. This article is for Washington residents and for Oregon residents who lived in a community property state while they were married.
Why this matters
Whether property is community or separate decides:
- How much of it each spouse can leave in a Will or Revocable Trust
- Who receives it if there is no Will
- How it is taxed when the first spouse dies, which can make a large difference to the survivor
- Whether family members may later disagree about who owned what
Your attorney may ask you to sort your property into community and separate before preparing your plan. If you are unsure about something, your attorney can help you work it out.
Key terms
- Community property: Property owned equally by both spouses, which generally includes everything either spouse earned or acquired during the marriage.
- Separate property: Property owned by one spouse alone, which generally includes what that spouse owned before the marriage and any gifts or inheritances received during it.
- Quasi-community property: A Washington term for property acquired while living in another state that would have been community property if you had lived in Washington.
- Community property agreement: A signed agreement in which a Washington couple decides how their community property will be treated. It is often used to pass everything to the surviving spouse at the first death.
- Basis: The value used to measure gain for income tax when property is sold, usually what was paid for it.
How property becomes community or separate
In general, wages either spouse earns during the marriage are community property, and so is anything bought with them. Property a spouse owned before the marriage stays separate, as do gifts and inheritances that one spouse receives during the marriage. When property is sold, the proceeds usually keep the same character, so selling a separate property house produces separate property cash.
Separate property can lose its status when it is mixed with community money, such as an inheritance put into a joint account or a shared home. Once it can no longer be traced, it may be treated as community property, which is why keeping records matters.
Couples who marry later in life often bring property of their own, so many have a mix of community and separate property.
The tax benefit at the first death
This is one of the most valuable reasons to know what is community property. When the first spouse dies, all of the community property gets a new income tax basis equal to its value at death. That includes the surviving spouse’s half, not only the half that belonged to the spouse who died. This is often called a full or double step-up in basis.
The result is that the gain built up over the marriage is effectively wiped out for income tax. For example, suppose a couple bought a home for $300,000 that is worth $900,000 when the first spouse dies. If the home is community property, the survivor’s basis becomes $900,000, and selling it soon after for that price produces no taxable gain.
Property that is not community property does not get this full benefit. If the same home were owned jointly as separate property, only the deceased spouse’s half would get a new basis. The survivor would then have a basis of $600,000 and a $300,000 gain on the sale.
Estate tax works differently. Only the deceased spouse’s half of the community property counts in their estate. For more, see this article.
If you live in Washington
Washington is a community property state, so these rules shape every married couple’s plan.
Whose name is on it does not decide
In Washington, the name on an account or title does not decide whether property is community or separate. What matters is when and how it was acquired. Property bought during the marriage with either spouse’s earnings is community property, even if only one spouse’s name is on it.
Retirement accounts are the most common surprise. A 401(k) or IRA is always in one person’s name, so many people think of it as theirs alone. But contributions from wages earned during the marriage are community property, and half of that part of the account belongs to the other spouse.
What each spouse can leave
Each spouse owns half of the community property. At death, you can leave only your own half, along with all of your separate property. Your spouse already owns the other half of the community property, so your Will or Revocable Trust cannot give it to anyone else.
If there is no Will
Without a Will, your surviving spouse receives all of your half of the community property, along with part of your separate property:
- Half, if you have children or other descendants
- Three-quarters, if you have no descendants but have a parent, brother, or sister living
- All of it, if you have none of these relatives
The rest of your separate property goes to your other relatives. A Will lets you decide for yourself.
Property from before you moved to Washington
If you acquired property while married and living in another state, Washington may treat it as quasi-community property. At death it is treated much like community property, so half belongs to the surviving spouse.
Community property agreements
Washington couples can sign a community property agreement. Both spouses sign it before a notary. It can be changed or revoked only in a writing both spouses sign. It also ends automatically if either spouse files for divorce or legal separation.
There are two kinds:
- One treats everything the couple owns now or acquires later as community property, however it is titled. Separate property becomes community property, which changes who owns it. This can extend the tax benefit described above to more of your property.
- The other does the same and also passes all community property to the surviving spouse at the first death, without probate.
With the second kind, the surviving spouse receives the community property outright at the first death. The first spouse’s Will does not control that property. A trust for the surviving spouse or a gift to children at the first death does not take effect for it.
Some agreements let the surviving spouse disclaim, or refuse, some or all of the property. Disclaimed property then passes under the first spouse’s Will. Probate may still be needed at the second death. Your attorney can explain whether either kind fits your plan.
Beneficiary designations
Because a retirement account or life insurance policy paid for with community money is partly your spouse’s, naming someone else as beneficiary can raise problems. Talk with your attorney before naming someone other than your spouse. For more on beneficiary forms, see this article.
If you live in Oregon and lived in a community property state
Oregon is not a community property state, but it respects community property you acquired while married and living in one. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
What happens at death
Half of that community property belongs to the surviving spouse, and the deceased spouse can leave only the other half. It also keeps the full tax benefit described above, so both halves get a new basis at the first death.
Which property it covers
The rule covers property acquired while you lived in a community property state, along with anything later bought with it or traceable to it. Property acquired during the marriage while you lived there is presumed to be community property.
Property you acquire after moving to Oregon is generally not community property. Property titled jointly with a right of survivorship while you lived in a non-community property state is presumed not to be community property either.
In Oregon, how it is titled matters
Unlike Washington, in Oregon the title on an account or property does matter. Once community property is retitled or mixed into other accounts, it can be hard to prove its status, and the tax benefit can be lost.
If you want to keep community property status, you have two main options:
- Title the account or property specifically as community property.
- Put it into a Revocable Trust that has specific community property language.
Tell your attorney where you lived while married, and when. Records showing what you owned when you moved also help.
Questions to discuss with your attorney
- If either of you expects to receive gifts or inheritances, do you want them to stay separate property?
- If you are in a second marriage or do not share children, might your beneficiaries later disagree about what was community and what was separate?
- If you have a mix of community and separate property, do you want to keep the distinction? Washington couples can also choose to treat all of it as community property.
Want to read more?
These articles are optional.
- Trusts for a surviving spouse: How community property and trusts work together. See this article.
- Estate tax: Federal, Washington, and Oregon estate tax. See this article.
- Outright or in a trust: How an inheritance can stay separate. See this article.
- Questionnaire help: If you are filling in the questionnaire, see the help for the Asset Details page for Washington or for Oregon.
- Glossary: Common estate planning terms. See this article.