Navigating Texas’ Community Property Laws in Estate Planning

How Do Community Property Laws Impact Your Estate Planning?

The purpose of estate planning for many people is twofold. First, they want to protect assets during their lifetime to ensure they have access to them in the future and provide for themselves even if they are incapacitated. Second, they want to ensure their assets pass on to their chosen beneficiaries at their passing, reducing the impact of probate and supporting the potential growth of generational wealth. Individuals often use estate planning tools such as trusts to support these goals.

However, in Texas, it is important to understand how community property laws might impact estate plans if you are married or get married later.

Understanding Community Property vs. Separate Property in Texas

Under Texas community property laws, all property acquired during a marriage is presumed to be community property unless it can be proven to be separate property. Community property includes income, regardless of who earned it.

Some examples of community property—property the law considers owned by both people in marriage—include:

• A house or other real estate that is purchased during the marriage, even if the title or mortgage documents only include one spouse’s name
• Income earned by either spouse during the marriage
• Certain types of compensation, including unemployment compensation, received by either spouse during the marriage
• Balances held in savings or checking accounts, even if the accounts are not held jointly

Separate property is owned by a single spouse and is not something the other spouse has an automatic right to in a divorce or upon the owner’s passing. Separate property might include:

• Property owned by one of the spouses before the couple married
• Gifts received by one of the spouses, even during marriage
• Property inherited by one of the spouses, even during marriage
• Certain elements of personal injury compensation to one of the spouses

How Does Community Property Impact Estate Distribution?

Without estate planning, property’s characterization as community property or separate property plays a huge role in the distribution of the property at a spouse’s death. Even with estate planning in place, you need to consider how ownership of the property plays a role in how you can protect and distribute it. 

Some key considerations for married couples during estate planning include:

• Creating a clear and cooperative plan. Being open and honest with each other about finances supports better potential outcomes with estate planning. Disclose all of your assets, including separate property. Understanding where you both stand can help you create a clear and cooperative estate plan that supports each person’s goals.
• Addressing surviving spouse’s rights. Ensure you understand how the rights of the surviving spouse might impact the ownership of assets and how they are transferred. If you buy a home during your marriage, community property laws create a presumption that you own the property together. Whether the house is community property or one spouse’s separate property, the surviving spouse may have a right to continue occupying the property.  You may need to consider how to handle this if you wish to pass that property on to someone else instead. 
• Integrating prenuptial agreements. Existing agreements about financial matters and property should be considered when you plan for your estate. That includes prenuptial agreements, which may dictate how property is handled throughout the marriage or when it ends—even if the end of the marriage is through the death of one of the spouses. 
• Considering blended family complications. Blended families can create complications in estate planning, even when everyone is happy and supportive of each other. It can be tempting to avoid conversations about how you and your spouse should plan for your assets in light of blended family situations, as you might not want to hurt someone’s feelings or cause friction with your loved ones. Talking about these matters as early as possible and working with an estate attorney to formalize your plans can reduce friction for everyone in the future. 
• Planning for potential incapacity. Many people associate estate planning with deciding what happens to assets after they are gone; however, you may want to include some plans that govern asset management and provide support if you, your spouse, or both of you are incapacitated. This can include setting up powers of attorney and creating trusts to ensure income and other assets are handled for your benefit. 
• Understanding tax implications. If you want to set aside assets outside of community property to pass on to others, you might face tax implications. Consider talking to an estate attorney to understand how taxes might impact your plans.

Work With Estate Attorneys to Support the Chance of Better Outcomes

Community property laws are meant to ensure spouses have equitable access to assets the couple obtained during their marriage; however, there are times when these laws might complicate your estate plans. If you and your spouse are working to ensure a stable future for you both while also attempting to leave a legacy for your loved ones, working with estate attorneys can help you understand how other laws impact those efforts and what you can do about it.

To find out how we can help, contact Rainey & Rainey, Attorneys at Law, PLLC, in Waco at 254-457-5083 or in Georgetown at 512-357-7169.