Dear Mr. Premack: I have read your past columns about Community Property Survivorship Agreements, and it sounds like something that would be good for my wife and me. I am curious, however, before we enter into an agreement, whether there are any circumstances under which this type of agreement is a bad idea. Are there any situations where we would want to avoid this survivorship agreement? – P.B.
For many decades, Texas law did not allow spouses to place survivorship rights on their community property. The policy was that each spouse already owned half of the marital assets, and that each could get along just fine with that half. Many people recognized that policy was flawed; it can be hard to live on all of a couples’ joint assets, and it can be a terrible hardship to have to get by on just half when one spouse dies.
Attempts were made to change the policy in the early 1900’s. The legislature passed a law allowing survivorship rights in community property, but the effort was struck down by the Texas Supreme Court as a violation of the Texas Constitution. This forced estate planners to use a certain creative genius, and many couples were encouraged to partition their community assets into separate property, and to then create survivorship rights in that separate property. But that two-step process was complex, confusing, and should have been un-necessary.
Finally in 1987, the change in policy was approached correctly. The legislature voted to amend the Texas Constitution, the Governor approved, and the voters supported the change. Then the legislature added new provisions to the Probate Code (now called the Estates Code) to allow specific legal steps creating survivorship rights in community property.
The Texas Supreme court later ruled that the 1987 policy change was legal and binding. Since then, spouses have been authorized to agree, in writing, that all or any portion of their community property will become the property of the survivor when either of them dies. This allows them to avoid probate of the survivorship assets, simplifying the legal process should either spouse die.
You ask if there are any times to avoid using a community property survivorship agreement. As with any legal tool, there are circumstances under which it would not be appropriate. For instance:
>> If an asset is separate property, it will not be covered by this legal tool. Example: Husband’s parents die and leave him their house. As an inheritance, he owns that house as his separate property. It cannot not be covered by a Community Property Survivorship Agreement. (If husband wants this separate property house to pass to wife, he can do so in his Will or a Trust, or he can convert it to community property and then can apply survivorship rights.)
>> If one spouse desires to leave various assets to someone other than the surviving spouse, then community property survivorship rights should not be used. Example: Wife and Husband have a community property bank account with $100,000. Wife strongly feels that if she is the first to die, her half of that account should become the property of their children, not her husband. She would want to use a Will or Trust, and to avoid using community property survivorship rights.
>> If the spouses wish to avoid probate twice – that is, when the first of them dies, and when the second of them dies – then they should consider a Living Trust instead of using a Community Property Survivorship Agreement. Living Trusts also provide disability planning which cannot be contained in a survivorship agreement.
Survivorship in community property can be a very useful and beneficial tool. But before it is used, spouses should discuss their specific goals and their specific assets with a qualified estate planning attorney. The correct solution can then be intelligently chosen, with solid legal counsel, from among all the planning possibilities.
Paul Premack is a Certified Elder Law Attorney in San Antonio. His firm has offices in Texas and Washington, and handles estate planning for all ages, probate law and business entity formation issues. Submit estate, probate, elder law and LLC questions at http://www.Premack.com, or go there to view the archive of past legal columns.
Original Publication: San Antonio Express-News, June 3, 2014