What is a Community Property Agreement and How Does it Interact with My Trust?

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If you live in one of the ten community property states, your state law may allow for a community property agreement. This is an agreement between spouses that acknowledges that all assets are community property. In addition, it stipulates that in the event of the death of one of the spouses, all of the assets are immediately transferred to the surviving spouse.

Some practitioners use this agreement in lieu of other planning for spouses in community property states. Be careful when entering into more sophisticated estate planning such as trusts planning, that you make your estate planning team aware of any previous community property agreements. A previously signed community property agreement could negate the effectiveness and planning benefits of that trust planning by passing everything to the surviving spouse outright, thereby causing the trust to be unfunded.

Historically, the nine community property states have been: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In 1998 Alaska passed the Alaska Community Property Act which allows a married couple to elect for all or part of their property to be treated as community property.