Holding Community Property in a Common Law State

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Holding Community Property in a Common Law State

Post by vl15 »

My spouse and I currently live in a community property state, but our plan is to relocate to a common law state in the coming years. I have a passing understanding of how community property and common law states differ, but I'm not clear on what happens when you move around. Here's a hypothetical scenario I'm confused about.

- Married couple opens a brokerage account in WA and contributes only community property funds to this account.
- Married couple moves to common law state and no longer contributes to the account.
- One spouse dies while living in the common law state.

Is it possible in this scenario for the surviving spouse to get a full step-up in cost basis and also avoid probate?

My understanding is that:

- WA considers the account to be community property whether titled as CP or JTWROS. (CPWROS doesn't seem to be an option here.)
- The IRS considers the account to retain its community character even after moving states.

Based on this, I would think that the account is eligible for a full step-up in basis at the spouse's death, regardless of where they live at death. But is the brokerage likely to record the full step-up if the couple no longer resides in a CP state or if the account is titled JTWROS (or, God forbid, both)?

As for probate, my understanding is that WA only allows community property to pass to the surviving spouse without probate through a community property agreement. Does such an agreement have any effect if the death occurs when domiciled in a common law state? If titled as JTWROS, can it just quietly be passed to the spouse without probate in the common law state (even though it was really community property)?

Any insight/resources to understand this sort of situation would be greatly appreciated. Thanks!
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