What happens to your property when you outlive your spouse?

Dear Len & Rosie,

I own a home and the deed is in my name only. My wife and I have been married for 23 years and she is a Japanese citizen. If I die, will my wife be able to get the home even though her name is not on the deed? Should I put her name on the deed?

Bob

Dear Bob,

What ever you do, don’t leave things alone, because if you die without a will or a trust, and your wife isn’t on title to the home with you, then you’re inaction is going to make things very difficult for her after your death. You need an estate plan.

If you die first, and you don’t have at least a will, then your wife will inherit all of the community property and either one-half of your separate property, if you have no children or only one child. If you have more than one child, your widow shall inherit only one-third of your separate property, together with the community property. The rest will wind up in the hands of your children or more distant relatives.

Only the portion of the home that you already bought and paid for prior to getting married is your separate property. The portion of the principal balance of your home loan that you paid off during the twenty-three years of your marriage is community property, half owned by your wife, even though her name isn’t on the deed to your home. But that’s not good enough to ensure that she’ll inherit the home on your death, because your children or other family members may argue with your wife as to how much of your home is community property. You’re asking for trouble, especially if they don’t like your wife.

At the very least you need to make a will that leaves your home to your wife upon your death. If you want her to avoid having to file a spousal property petition, you should either create a revocable trust with your wife, or you can add her name to the title of your home.

There are two ways of doing this. More commonly, married couples own their homes in joint tenancy, but it’s better that the home be titled “husband and wife as community property with right of survivorship”. That way, the home will avoid probate upon the first death, but it will also be counted as community property for tax purposes. Upon the first death, the cost basis of 100% of the home (not just the dead spouse’s half) will be stepped up to its date-of-death value. This would allow your wife to sell the home if she wants to after your death while avoiding a great deal of capital gains tax.

However, the best thing that the two of you could do is to create a revocable trust to avoid probate on the second death as well as the first, but if you choose to go with wills and holding title to the home in both of your names, do not forget that both of you need to create durable general powers of attorney and advance health care directives so that you may make important decisions for one another if either of you should become incapacitated.

Len & Rosie