Community property is property acquired by married individuals living in a community property state (except property acquired by one spouse by gift or inheritance or property spouses designate under state law as separate property). Each spouse owns an undivided one-half interest in the community property. Should the estate owner move to a non-community property state, the community property assets will remain as community property.
Community property assets may not be utilized for gifting purposes in this program. If community property assets are to be used for gifts, the asset must be he treated as each spouses separate property and re-entered in the name of each spouse separately. Generally, 50% of the community property asset will be allocated to each spouse.
At death, the estate owner may leave his/her one-half interest to whomever he or she chooses. At the death of the first spouse there is a step-up in income tax basis for both halves of community property assets. Thus, the surviving spouse receives a new cost basis for his/her half of community assets when the other spouse predeceases.
There are ten community property states and substantial differences exist concerning the technical aspects of community property for each state.
Community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
For purposes of this program, it is assumed that life insurance, qualified retirement plan and IRA death proceeds are NOT community property assets.
