Estate planning involves outlining how a person’s property will be distributed after they pass away. In most states, estate planning deals only with the property one person owns. However, Nevada is a community property state, which means estate planning may also address property that is owned jointly by a couple, even when it is in one spouse’s name only.
There are certain strategies people can use to ensure that separate property remains separate and does not become community property. Before doing so, it is important to understand the differences between the two types of property, and to know which is better for estate planning. Below, our Nevada estate planning lawyer explains in further detail.
What is Community Property?
Nevada is a community property state, which means that spouses own their property together. This means that spouses own all income together from the time they are married until the time they separate. Additionally, all property acquired with ‘community’ income during the marriage is also owned equally by the husband and wife, regardless of whose name is on the property or which spouse purchased it. Like community assets, any debt incurred from the beginning of the marriage until the date of separation are also community debts. This means that each spouse carries equal liability for debts.
There are eight other community property states in the country. They are California, Arizona, Louisiana, Idaho, Texas, New Mexico, Wisconsin, and Washington.
What is Separate Property?
Separate property, on the other hand, refers to all property owned separately by spouses. Separate property includes the following:
- Any property owned before marriage
- Any property received as a gift or inherited during the marriage
- Any property either spouse acquired after the date of divorce or legal separation
In addition to the above, there are strategies couples can use to classify property acquired during the marriage as separate property. The best way to do this is through a premarital or postnuptial agreement. These contracts override some aspects of Nevada’s community property laws.
Just as separate assets belong to one spouse only, so too, do separate debts. For example, if one spouse acquired a student loan before getting married, they would be solely liable for that debt because it is separate property.
What is the Advantage of Community Property in Estate Planning?
One of the biggest advantages that comes with community property are capital gains taxes. If one spouse passes away, the cost basis of community property is ‘stepped up.’ This means that the current value of the property is used as the cost basis.
For example, a couple may have purchased a house several years ago for $200,000. Today, that same house may be worth $700,000. If one spouse passes away, the surviving spouse will receive a step up to $700,000 from the original cost basis of $200,000. If the surviving spouse sells the home right away, they will not owe any capital gains taxes.
In other states that do not follow community property rules, only the deceased spouse’s interest in the property, which is typically 50 percent, is stepped up. This is one of the biggest reasons community property has the advantage over separate property when planning one’s estate.
When planning your estate in a community property state such as Nevada, it is important to review all of your assets and determine which are classified as community property and which are classified as separate property. Surviving spouses in community property states are entitled to half of the community property by law, regardless of what the spouses may have wanted to do with certain assets. For example, even if someone wanted to leave property to their children, the surviving spouse still has the right to it.
Any time spouses in community property states move to a different state that does not follow community property rules, it is critical they review their estate plan to ensure that it still works as they intended.
Our Estate Planning Lawyer in Nevada Can Help with Your Case
Many people think community property rules only impact marriage and divorce, but they have a significant effect on estate planning, too. At Boyer Law Group, our Nevada estate planning lawyer can review the facts of your case, listen to your goals, and create an estate plan that will provide the protection you want for yourself and your family. Call us now at 702-255-2000 or fill out our online form to schedule a free consultation with our experienced attorney and to learn more about how we can help.