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In Arizona, community property with right of survivorship is one way for married couples to own property together. It is a valuable option to consider during estate planning because it can mitigate taxes on the property and bypass probate, along with other benefits. However, other ownership arrangements are available and may be more suitable depending on your estate planning goals.

At Pennington Law, PLLC, our experienced estate planning lawyers can review your circumstances and recommend whether community property with right of survivorship is the best method for you. We can also discuss other popular methods, like joint tenancy with right of survivorship (JTWROS), to guide you in making decisions that make sense for you and your family.

Our law firm prioritizes the development of straightforward strategies to maximize your wealth, provide asset protection, and reap tax benefits without causing undue stress. With years of estate planning experience in Arizona, we can discuss the optimal ways to protect your property and minimize potential complications after you die.

To learn more about joint tenancy vs. community property with right of survivorship in Arizona, contact us today for a free consultation.

What is Community Property in Arizona?

Arizona is a community property state. Community property describes the way married people own assets. Under Arizona law, both spouses own anything acquired during the marriage equally, regardless of who purchased it.

Community property can include real estate, income, businesses, financial accounts, investments, cars, and even debts.

What is Community Property With Right of Survivorship?

Community property with right of survivorship (CPWROS) is an arrangement in which a surviving spouse inherits marital property immediately upon their spouse’s death without passing that property through probate.

The arrangement also presents opportunities for tax savings. With CPWROS, the property of a surviving spouse gets a full step-up in basis after their partner dies. This means the property’s cost basis gets adjusted to the fair market value after the spouse’s death, reducing capital gains taxes if the remaining spouse decides to sell the property.

Take real estate as an example:

  • Jane and Joe buy a house in Sun City West for $500,000.
  • When Jane dies, the house is now worth $700,000.
  • With a full step-up in basis, the new cost basis is $700,000 for Joe.
  • If Joe decides to sell the house for $750,000, he will only owe capital gains taxes on the $50,000 rather than the entire value if there was no step-up.

Advantages and Disadvantages of Community Property with Right of Survivorship

Couples can benefit from various advantages of owning assets as community property with right of survivorship. Along with tax savings, the benefits of CPWROS include:

  • Shared ownership – Arizona’s community property laws allow couples to own assets 50/50.
  • Simplifying property transfers between spouses – When couples wish for the surviving spouse to inherit the marital estate, CPWROS can ensure that the surviving spouse automatically inherits those assets.
  • Probate avoidance – Without a right of survivorship, a surviving spouse may have to pursue probate to inherit their loved one’s assets or ownership interests. The court-supervised probate process takes time and costs money, including court filing fees and legal expenses.

However, some of the disadvantages of holding property as community property with right of survivorship include:

  • Less flexibility in estate planning – When a spouse wishes to leave property they hold as community property with right of survivorship to someone other than their spouse, they cannot bequeath that property unless they predecease their spouse and inherit their spouse’s interest.
  • Increased risk from creditors – If one spouse incurs debts or liabilities, they may put an asset held as CPWROS at risk for both spouses. Furthermore, creditors of a deceased spouse may still pursue claims against a property after the surviving spouse inherits their deceased spouse’s interest.
  • Loss of control – Once a couple chooses to title property as community property with right of survivorship, each spouse loses some control over the property. For example, both spouses must agree to refinance, encumber, or sell the property. A designation of community property with right of survivorship can end only if the couple gets divorced or if one spouse files the appropriate affidavit to terminate the right of survivorship.

Alternatives to Community Property With Right of Survivorship in Arizona

Alternatives to community property with right of survivorship that individuals might consider for owning assets include:

  • Joint tenancy with right of survivorship (JTWROS) – Often used by unmarried couples and business owners, JTWROS allows the automatic transfer of property to the other owner. However, there are differences in how the property gets taxed upon a co-owner’s death.
  • Tenancy in common – Each owner holds a percentage of the property. Upon one owner’s death, their portion of the property goes through probate.
  • Beneficiary deeds – Also called a transfer-on-death (TOD) deed, a beneficiary deed allows property owners to designate a person to inherit the property upon their death automatically, avoiding probate.

Protect Your Property — Talk with an Arizona Estate Planning Attorney Today

It’s important to understand your options for titling property during the estate planning process. For more information on community property with right of survivorship and a strategic review of the most beneficial ways to safeguard your wealth, contact Pennington Law, PLLC today. Firm founder Andre Pennington is a skilled estate planning lawyer and registered financial planner who can evaluate your situation and develop customized solutions to protect your property, prepare for the future, and meet your financial goals.

There’s no charge for your initial consultation, so you have nothing to lose. Call today to get started.