The saying “what is mine, is yours” is a lovely and generous gesture, but might be far from the truth. In forty-one states, “what is mine, is mine” and “your debt, is yours” is a more accurate statement. The remaining nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), treat the saying with a little more legitimacy and view assets earned and debt acquired during marriage as community property that each partner gets to share 50/50 (for better or worse).
A huge benefit of community property is that under basic rules, when one spouse passes away, the surviving spouse receives a full step up in the cost basis of their shared assets. Put more simply, if the surviving spouse wanted to sell an asset the day after their spouse passed away, they could do so with little to no tax ramification.
Unfortunately, it is common for mistakes to be made putting this benefit at risk. The most common mistake is titling joint assets as ‘Joint-Tenants with Rights of Survivorship.’ Although the title sounds like what a married couple would want to occur, this titling structure does not reflect community property status and only 50% of the joint assets would be eligible for a cost basis step up at first death.
Fortunately, the solutions are simple. Re-registering joint assets as ‘Joint – Community Property’ or establishing a joint revocable trust would allow a married couple in a community property state to preserve the full cost-basis step-up benefit, while also achieving their estate planning goals.
If you, your spouse, or someone in your life could benefit from discussing how their account titling could have a positive or negative impact, please do not hesitate to contact your team at Rolling Hills Advisors.
This material is provided for informational and educational purposes only. It is not a recommendation of any kind. Any opinion expressed herein is subject to change without notice. The information provided herein is believed to be reliable, but we do not guarantee accuracy, timeliness, or completeness. It is provided “as is” without any express or implied warranties.
The use of trusts involves complex laws, tax rules, and regulations and individuals should consult with their legal and tax advisors or other qualified professionals regarding their personal circumstances and needs before making any legal, tax or financial related decisions. The information provided herein is not legal, tax or financial advice.
Investment Advisory Services are offered through Mariner Platform Solutions (MPS), an SEC Registered Investment Adviser. Rolling Hills Advisors and MPS are not affiliated entities. For additional information about MPS, including fees and services, please contact MPS or refer to Form ADV Part 2A, which is available on the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Registration of an investment adviser does not imply a certain level of skill or training. MPS does not provide legal or tax advice.
