Here’s one more item married couples must investigate if considering relocating to another state: How will a new state’s laws affect your property rights?
For married couples living in a community property state, money earned and property acquired by either spouse during marriage generally is “community property” — meaning each spouse has an undivided one-half interest (regardless of how property is titled). When one spouse dies, his or her share of community property goes to the surviving spouse unless a will provides otherwise.
Typically, property retains its character as community or separate property when you move from one state to another unless you take an action that causes the character to change.
It could be a costly mistake to assume your new home state is a community property state. Consider these differences if you are moving from a community property or moving to a community property state.
Couples relocating from community property states. A common mistake is to unintentionally convert community property into jointly held property. Community property offers a tax advantage: It generally is entitled to a fully stepped-up basis in the hands of a surviving spouse. With jointly owned property, the surviving spouse receives a stepped-up basis on only half of the property’s value.
Couples relocating to community property states. A potential trap involves “quasi-community property” — property that would have been community property if the couple had lived in the new state all along. Some states treat such property as community property, which can lead to unpleasant surprises.
Don’t be unpleasantly surprised once you have moved. It’s critical to find out how a new state’s laws will affect your property rights. If you’re in this situation and have questions, please contact us.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.