Using a Community Property Survivorship Agreement

Dear Mr. Premack: My husband and I own our home, have some savings and a few investments. We were told by an insurance man that probate can be very expensive (he tried to get us to buy $20,000 life insurance to cover those costs).  We didn’t get the insurance but want to avoid the expense of probate. A neighbor said you had done a “community property survivorship agreement” for them. What is it, and can it help save us money? – D.D.

Spouses in Texas have been able to use the community property survivorship agreement (CPSA) to help avoid probate since 1987. It is based on a provision in the Texas constitution and sections of the Texas Probate Code (called the Estates Code starting in 2014).

While avoiding probate is often an attractive idea, I’d like to correct the information you were given about probate costing an outlandish amount. Probate is the process of administering an estate using the Last Will and Testament. Most Wills allow a process called “independent probate,” which is free of court supervision. Probates conducted in that manner should have much more tolerable costs, perhaps one-tenth the amount quoted to scare you into buying insurance.

Even if probate can be a fast, fairly inexpensive process, there are times when avoiding altogether is a workable idea. A CPSA allows a husband and wife to agree that ownership of community property passes automatically to the surviving spouse when the first one dies, without probate. When spouses have signed a CPSA, they must file it with the County Clerk. Later, when one spouse dies, there is no requirement of courtroom process to enforce the agreement.

The CPSA actually takes priority over the Will of the person who died, so it is important that you plan carefully. You want to coordinate the same plan in both your Will and in your CPSA. If your estate is uncomplicated and will not be exposed to federal estate tax, then a CPSA may be all you need.

To decide if a CPSA is right for you, consider the following concepts:

1) The CPSA avoids probate only upon the death of one spouse. It fulfills its role at that time. If you both die together in an accident, or if one spouse has already died, the CPSA is not beneficial.

2) Both spouses still need Wills to cover issues the CPSA cannot handle. This includes naming “backup” heirs if both spouses die together and passing title to any separate property.

3) You should avoid using a CPSA if your estate is subject to federal estate tax. When an estate is $5,340,000 or more (2014 amount) there are techniques that can be used to reduce or to eliminate the taxes. The cost of probate is truly minimal compared to federal estate taxes, so you should rely on a Will or a Living Trust that contains a “shelter” or “bypass” trust plan. I’ve written about those plans in this column before, and you can read those columns in my archives.

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