Question: We are a same sex couple, recently married. Could you please explain community property and how it affects us?
Answer: This is a great question and one that is very relevant given that as of October 17, 2014 same-sex couples may be legally married in Arizona, and Arizona will recognize the validity of same sex marriages performed in other States.
Community property title may only be acquired by married couples in community property states (like Arizona). Similar to joint tenancy, each person owns an undivided interest in the entire property. Each spouse controls his or her one half interest, theoretically being able to transfer that one half interest on death to a third party other than the surviving spouse. However, in most cases the estate plan of a married couple will provide that the deceased’s half share transfers in some manner or another to the surviving spouse.
There is a significant benefit from a capital gain tax standpoint in that the entire property (not just the half belonging to the deceased spouse) will receive a step-up in basis on death. This allows for a double step-up. A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. This permits a surviving spouse to sell highly appreciated property, after the first spouse’s death, with significantly reduced capital gains. Comparing community property to joint tenancy with right of survivorship, the surviving joint tenant under joint tenancy receives only a step-up in basis on the deceased owner’s share, but not on his or her own share.
There are many other attributes of community property law we don’t have space to address in this column. Needless to say, legalization of same-sex marriage, allowing same-sex couples to be legally married, places same-sex couples on par with all other married couples in Arizona.
Controlling Religious Preference from the Grave?
Written by Lou Silverman
Friday, 26 September 2014 10:30
How far will the courts go in allowing us to control religious preference from our graves? This was the issue in a recent Illinois Supreme Court case, involving the estate of Max Feinberg. Mr. Feinberg and his wife were committed to Judaism and sought to encourage and support Judaism through their estate plans. Specifically, Mr. Feinberg created a trust which contained a restriction that conditioned the receipt of an inheritance by each of their five grandchildren on whether or not each grandchild married a spouse of the Jewish faith. As a result of the clause, only one of the grandchildren was eligible to receive any money from the estate.
Courts have historically wrestled with Will clauses which restrain marriage. The courts have generally refused to enforce clauses which prohibit a beneficiary from marrying anyone as a condition to a bequest. A more debated issue has been partial restraints, conditioning bequests on the religion or the color of the skin of the spouse. A restriction on marriage to a person of a certain skin color would likely be unenforceable because it violates public policy. One might assume that the same principle would apply to religious restrictions.
However, in the Feinberg case the Supreme Court of Illinois enforced the religious restriction. A number of principles were discussed, but the overriding factor was the right to leave one’s estate to whomever one chooses. The corollary to that is that one does not have a constitutional right to inherit anything. So the court held that Mr. Feinberg had the right to condition a bequest on the grandchild’s marital status to a person of Jewish faith.
This decision, although not binding in Arizona, certainly opens the door to discussion on to what extent a court in Arizona will enforce similar restrictions. It is not uncommon, for example, for my clients to restrict distributions based upon completion of education, obtaining a specific degree, or even choosing a specific occupation. All of these conditions would be enforceable. Whether Arizona courts will enforce restrictions on religious choice or similar constraints is presently unknown.
Last Updated on Friday, 26 September 2014 10:34
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