What is community property and how does it affect estate planning in Arizona?

Under A.R.S. 25-211, all property gained during marriage is community property. It does not matter whose name is on it. It does not matter who earned the income. Both spouses own it equally.

There are three key exceptions:

• Gifts: A gift to one spouse stays that spouse's own
• Inherited assets: These belong to the spouse who got them
• Post-divorce property: This is separate once the final decree is done

One common mistake is mixing separate and shared funds. Putting inherited money into a joint account blends the funds. Once mixed, it is very hard to prove which part is separate.

Each spouse can only direct their own half. They do this through a will or trust. If your plan labels shared property as separate, it may fail.

This causes trouble in common cases:

• Trust funding errors: A trust may only cover one spouse's assets
• Conflicts with named heirs: A retirement account may name one person. But the other spouse has a claim to half
• Blended family issues: The dead spouse's share follows their will. The living spouse keeps their half. But unclear labels can spark fights

When a spouse dies, only their half may go through probate. The living spouse's half is not part of the estate. A funded living trust keeps both halves out of probate. The key is titling all shared assets in the trust.

If there is a will or trust, the dead spouse's half follows those papers. If there is no will, A.R.S. 14-2102 decides.

Under default rules:

• If all children are from the current marriage, the living spouse gets all
• If the dead spouse has children from a prior marriage, the living spouse gets the shared half only. Separate property goes to those children

These default rules often miss what families want. A trust or will lets you choose your own plan.

Arizona offers a big tax break for shared property. When one spouse dies, both halves get a stepped-up tax basis. The basis resets to fair market value at death.

In separate property states, only the dead spouse's half gets the step-up. The living spouse's half keeps its old basis. That could mean higher capital gains taxes at sale.

This can save Arizona families thousands in taxes. It helps most with real estate or investments that grew in value.

To make sure shared property is handled right:

• Work with your attorney to sort every asset
• Title shared assets in your living trust
• Check named heirs on retirement accounts and life insurance
• Think about a community property agreement or prenup
• Do not mix separate funds with shared funds by mistake

Knowing Arizona's community property laws is a must for married couples. It is the base of every estate plan. Getting it right guards your spouse, your children, and your legacy.