Community Property: General Considerations (Portfolio 802)

Description

Tax Management Portfolio, Community Property: General Considerations, No. 802, discusses the origins; the general characteristics; and the federal income, gift, estate, and generation-skipping transfer tax aspects of community property. The 10 states in which some form of community property is in effect are: Alaska (elective), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

This Portfolio describes the general characteristics of community and separate property, as well as those of combined community and separate property. It also describes the application of the gift, estate, and generation-skipping transfer tax laws to community property, and the application of the income tax laws to community property in estate planning.

Community property is a form of co-ownership between a husband and wife in which each spouse owns an undivided one-half interest in each item of community property onerously acquired during marriage, regardless of the manner in which the property is titled. Community property ownership exists between a husband and wife, and all property acquired out of earnings during marriage is presumed to be community property. In addition, the proceeds of, and the income earned with respect to, community property are themselves treated as community property. In about half of the community property states, the income from a spouse’s separate property is also treated as community property. All property acquired before marriage, after its termination, or by gift, devise, bequest, or inheritance is separate property. Gifts of community property can generally be made only with the consent of both spouses. In some community property states, spouses are free to establish their own rules as to the character of property already acquired or which will be acquired as community or separate property.

A gift of community property is generally treated as a gift by each spouse of a one-half interest in the property. Section 2033 generally requires inclusion in a decedent’s gross estate of the value of all the decedent’s separate property and the value of one-half of all of the community property. The estate tax consequences of owning various types of community property are discussed in detail, as is the deductibility of administrative expenses and losses.

This Portfolio may be cited as Treacy, 802 T.M., Community Property: General Considerations.

Table of Contents

I. Introduction
II. Summary of Community Property Law
III. Income Taxation of Community Property
IV. Estate Tax Consequences
V. Gift Tax Considerations
VI. The Generation-Skipping Transfer (GST) Tax
VII. Valuation