Determining Decedent’s Surviving Spouse’s Marital Interest
- What Is Community or Quasi-community Property?
- What Is the Effect of Determining an Asset to be Community or Quasi-community Property?
- An Asset’s Character May Not Be What It Says on Its Title
- Commingling of Assets
- Handling the Surviving Spouse’s One-Half Interest in Decedent’s Probate
A. What Is Community or Quasi-community Property?
Washington, like California and seven other states, is a community property state. Consequently, if Decedent was married at death, it is likely that some and perhaps all of Decedent’s property is either:
- Community property: Property acquired:
- By either spouse or both spouses,
- During their marriage and while residing in Washington, and
- With funds that were neither:
- Brought to the marriage, or
- Obtained during the marriage by gift or inheritance. RCW 26.16.030
- Quasi-community property: Property acquired:
Example: John and Martha are married to each other and live in New York, a separate property state. John celebrates the announcement of his promotion and job transfer to Washington by using a portion of his earnings to buy a new family car. John and Martha move to Washington, become enraptured by its native beauty, and soon use a substantial portion of their marital savings as a down payment on a new home close to John’s new work. In reverse order:
- The home is John and Martha’s community property, as it was purchased while residing in Washington and with funds saved during their marriage.
- The car is John and Martha’s quasi-community property, as although it was purchased while residing in a separate property state, it was purchased with John’s earnings during the marriage and, as a consequence, would have been their community property had they then been living in Washington.
B. What Is the Effect of Determining an Asset to be Community or Quasi-community Property?
All of the property of a Decedent married at death will need to be characterized as either community, quasi-community, separate, or some combination among them. Why?
- Because Decedent’s surviving spouse has a one-half ownership interest in all of their:
- Community property. RCW 26.16.030 And
- Quasi-community property. RCW 26.16.230 See also RCW 26.16.240 regarding transfers of quasi-community property within three years of Decedent’s death.
- But NO interest in Decedent’s separate property.
In other words, Decedent owns only one-half of the combination of their community and quasi-community property, and owning only one-half of it, Decedent can dispose of only the one-half interest that he/she owns. The other one-half interest belongs to Decedent’s surviving spouse to dispose of, during life or at death, as he/she desires. The only property that Decedent can dispose all of is his/her separate property.
- Because Decedent owns only a one-half interest in any community or quasi-community asset, only one-half of the value of each such asset (to the extent it is not subject to a Community Property Agreement) will be:
- Inventoried in Decedent’s estate for probate purposes (well, not quite — see below),
- Subject to transfer by Decedent to any heir or beneficiary for transfer purposes, and
- Subject to any estate taxes for estate tax purposes.
- Because not only will Decedent’s one-half interest receive a step-up in basis for income tax purposes, but so will the surviving spouse’s one-half interest. See Double Step-Up in Basis.
- Because if Decedent died intestate, “Who gets what” for each asset will depend on its separate vs. community character, specifically:
- If the asset is community or quasi-community, it all goes to Decedent’s surviving spouse.
- If the asset is separate, half of it goes to Decedent’s surviving spouse, and the other half goes to Decedent’s children. See An Heir of Decedent.
- Because if Decedent died testate and gives any asset in his/her Will to someone other than his/her surviving spouse, whether that done will subsequently own all or only half of the asset will depend on its separate vs. community character.
- Because Decedent’s surviving spouse has the right to administer all of the community property in Decedent’s estate (see below).
Consequently, the issue of characterization of each of Decedent’s assets can potentially become one of, in the words of the notorious bank robber Willie Sutton, “Where the money is” — especially in the eyes of an intestate Decedent’s surviving spouse and any children of Decendent’s prior marriage.
C. An Asset’s Character May Not Be What It Says on Its Title
There is more to this characterization than meets the eye, specifically, how any asset is expressly titled. Under Washington law, ALL property acquired by either spouse or both spouses during their marriage and while residing in Washington is presumed to be community property — regardless of how the property may be titled. Therefore, unless it can be shown that the property was truly separate property, it will presumed to be, and treated for probate purposes as, community property. Citations: A long line of cases, extending from Yesler v. Hochstettler, 4 Wash. 349 (1892) through Marriage of Chumbley, 150 Wn.2d 1 (2003) [Use of spouse’s separate property to exercise Immunex stock options received during employment while married].
Under Washington law, separate property is property that is either:
- Acquired before, brought to, AND maintained separately during the marriage; or
- Acquired during the marriage by gift or inheritance, intended by its donor to be the separate property of one spouse, AND maintained separately during the marriage after its acquisition; or
- Converted to separate property by a valid agreement between the spouses (eg, by a Property Status Agreement or Postnuptial Agreement) AND maintained separately during the marriage after its conversion.
RCW 26.16.010, 26.16.020, and 26.16.120
To rebut the presumption that all property acquired during a marriage is community property, clear and convincing evidence must be shown that the asset in question fits into one of the three separate property categories shown above. Dean v. Lehman, 143 Wn.2d 12 (2001) [Wife of Department of Corrections inmate challenged validity of Washington statute mandating deduction of 35% of all funds received by prison inmates].
Practically speaking, this means that in order to determine that any asset in the estate of a Decedent survived by a spouse is truly Decedent’s separate property, you will need to obtain such information as:
- The date of Decedent’s marriage,
- The date of acquisition of the asset in question,
- The state of residence of the spouses at its acquisition,
- Whether the asset was obtained by purchase or by gift or inheritance,
- If obtained by purchase, the source and character of funds used to purchase it,
- If obtained by gift or inheritance, the intention of its donor as to its character in Decedent’s hands,
- The means used to ensure that it was maintained as separate property and not commingled,
- The existence and terms of any property agreement between the spouses, etc.
D. Separate Property Can Lose Its Separate Character in Time: Commingling of Assets
To complicate matters further, separate property can lose its separate character over time and become community property through a process known as “commingling.” Separate property remains separate property though changes and transitions (eg, sale of separate property and subsequent use of the sales proceeds to purchase other separate property) so long as its separate character remains traceable and identifiable. If, however, the ability to distinguish or apportion it from community property is lost, the entire amount of what began as a separate asset becomes community property. Marriage of Pearson-Maines, 70 Wn. App. 860 (1993). The burden is on the party claiming separate property to clearly and convincingly trace the purported separate asset to a separate property source. Marriage of Skarbek, 100 Wn. App. 444 (2000). This process is known as “tracing,” and it in particular and this characterization in general can easily become contentious, especially in either of the following cases involving a surviving spouse and Decedent’s children of a prior marriage:
- An intestacy — Decedent’s children will collectively receive one-half of any asset only if it can be shown to have been Decedent’s separate property at death.
- A testacy in which Decedent gave one or more assets in his/her Will to the children (or anyone else other than his/her surviving spouse) — the children (or other donee) will receive all of the asset only if it can be shown to have been Decedent’s separate property at death.
If you have any questions at all about this characterization or tracing, WASHINGTON PROBATE urges you to obtain legal counsel.
E. Handling the Surviving Spouse’s One-Half Interest in Decedent’s Probate
One practical problem arising at the death of a married spouse is how to handle the surviving spouse’s one-half community interest as regards Decedent’s probate estate, namely, whether the Decedent’s probate estate should include:
- Only Decedent’s one-half interest in the community, or
- Both halves of the community.
Washington handles this problem by providing that for community property that is not the subject of a Community Property Agreement between the spouses:
- All of the spouses’ community property (that is, both spouses’ one-half shares) is to be included in the Decedent’s estate for purposes of probate, with the Decedent’s one-half share being subject to his or her disposition and the surviving spouse’s one-half share ultimately being confirmed to him/her (RCW 11.02.070), and
- The surviving spouse (or his/her written designee) is entitled to manage the community property in the Decedent’s probate estate regardless of any provision in the Decedent’s Will to the contrary (RCW 11.28.030).
As for community property that is the subject of a Community Property Agreement between the spouses, such property:
- Is a nonprobate asset under RCW 11.02.005(15),
- Is not subject to probate, and
- Passes according to the terms of the Community Property Agreement (usually, but not necessarily, to the surviving spouse).