Are there benefits to ‘community property with right of survivorship’ in home ownership?
Question: In a recent column, you discussed the benefit of spouses owning their home (or other real property) as community property with right of survivorship. You said that for a home owned as community property with right of survivorship, after the death of the first spouse, the surviving spouse is the sole owner of the home. Whereas if a home is owned simply as community property, after the death of the first spouse, the deceased spouse’s estate and the surviving spouse are 50-50 owners of the home. Can personal property, such as stocks and bonds, also be held as community property with right of survivorship? If so, should we transfer our stocks and bonds from our revocable living trust to community property with right of survivorship?
Answer: The benefits of spouses holding title to a home as community property with right of survivorship are probably only available for a home or other real property. See the relevant law at A.R.S. § 33-433. These community property with right of survivorship benefits are (1) an avoidance of probate and (2) a step-up in basis for tax purposes to the current fair market value of the home at the time of the first spouse’s death. This step-up in basis will generally minimize the amount of taxes owed on a subsequent sale of the home.
Note: If the stocks and bonds are already in your revocable living trust, upon the death of the first spouse, the remaining spouse should be able to avoid the requirements of probate, and should also have the step-up in basis for the stocks and bonds.