Introduction and Administrative Notes on Arizona Community Property Laws
00:07:42
Michelle Dexter: Well, good afternoon, everybody. Uh, my name is Michelle Dexter. I’m an attorney here with Keystone Law Firm, and I appreciate you all joining me this afternoon for our webinar on Arizona community property laws in the Grand Canyon State here in Arizona. Um, I’ve been an attorney here in Arizona um more years than I want to count. And I’m also licensed in California, which also happens to be a community property state. So, we’ll touch a little bit on both because they’re—they’re very similar in that regard. When dealing with marital assets, understanding Arizona community property laws is essential for every married couple. I have not researched all other community property states, but we’ll talk a little bit about that. I am fighting off a little bit of a cold, so if I go mute for a minute and have a coughing fit, please excuse me. Um, I appreciate your patience with that, but I definitely wanted to have this um webinar today and make sure that we got this information out to everybody. As normal, we have to do all of our obligatory legal notices and the fact that this is for educational purposes.
00:08:39
Michelle Dexter: It’s not intended to be legal information for anybody in particular. Certainly, if you have more questions about your specific situation or information that we’re providing today, please feel free to reach out to us directly or book an appointment. We’ll be happy to try to get your questions answered. At the end, we will also have an opportunity for some questions. Just keep in mind that this is a public forum. This webinar will be available on our YouTube channel in the future, and so you won’t want to give away any personally identifiable or sensitive information. All right. So, here in the United States, we have a couple of different options when it comes to how marital property is managed. Right. Here in Arizona, we follow Arizona community property laws. We’re one of nine um states that follow community property laws. Under the governing Arizona community property laws and statutory codes, everything acquired during the marriage is considered community property, jointly owned by each spouse regardless of how the asset is titled, excuse me. However, every state does have some separate property laws.
Community Property vs. Separate Property vs. Common Law Under Arizona Community Property Laws
00:09:40
Michelle Dexter: Okay. So even in Arizona and California, while they are governed by Arizona community property laws and similar state frameworks, assets owned prior to the marriage—so assets that you might be bringing into the marriage, assets that you inherited or were gifted during the marriage (so your parents pass away and you inherited something, or somebody gives you a generous gift)—and personal injury awards are all considered separate property. Okay. Also, if you have any kind of pre- or postnuptial agreement, that can also impact the character of property under Arizona community property laws and change it from a community property to a separate property type of asset. Most of the other states in the US, including the District of Columbia, follow what they call a common law property system. Assets are owned by the title owner, but distribution upon death and divorce can vary based off of some equitable standards that each state has in that regard. With Arizona community property laws, community property is just very much anything that you acquire during the marriage, even if the account’s only in my name, but it’s my income during the marriage and I don’t have a premarital or postnuptial agreement, then that is going to be community property to which my spouse is going to be entitled to half of under Arizona community property laws.
00:10:51
Michelle Dexter: Okay. Things that you want to take into consideration when you have community property—and we’ll talk a little bit more in detail on these—taxes. So, it’s really important to be intentional about tax planning under Arizona community property laws, considering how income is going to be reported, and to understand how the stepped-up basis works for married couples under Arizona community property laws when we’re looking at a death situation, right? You also want to be really uh intentional about your estate planning. People often assume that under Arizona community property laws, everything automatically goes to the spouse, and that isn’t always the situation. We’ll talk a little bit more in detail about that. Dissolution of marriage: This is where most people kind of worry about the division of assets if the marriage is dissolved. Generally, assets characterized under Arizona community property laws will be equally divided between the spouses. And so, that is usually the biggest point of contention for people um governed by Arizona community property laws—they feel like, you know, “Maybe I’m a higher breadwinner than my spouse is and it doesn’t seem like it’s fair,” but that’s what you signed up for under Arizona community property laws unless you have something different in writing.
Income Tax Implications and Arizona Community Property Laws
00:11:54
Michelle Dexter: Okay. So taxes, you know, the payment of taxes can be a significant concern to a surviving spouse. The surviving spouse and subsequent beneficiaries should be knowledgeable about how taxes on income and capital gains can be impacted by the death of somebody. And understanding how Arizona community property laws interact with that stepped-up basis could be key to saving a lot of money in taxes. During your lifetime with income, when you’re filing jointly, income is reported together. If you’re filing separately under Arizona community property laws, you are expected to report and pay taxes on half of your income and half of your spouse’s income. Now, um, of course, you can always have a separate agreement with regards to how that’s managed, but keep that in mind that from the IRS’s standpoint under Arizona community property laws, that is the expectation. So, if your spouse doesn’t do their half of both uh pieces of income, you could end up being in trouble for that. Okay? You also will be paying income taxes on 100% of your separate property income. So if you have an account that you inherited and that is generating some income, you are expected to pay the taxes on that yourself.
Understanding the Stepped-Up Basis Under Arizona Community Property Laws
00:12:59
Michelle Dexter: Okay. Stepped-up basis. So this is a question that I get a lot when I’m talking to families and they’re concerned about what the taxes are going to be for their family and their beneficiaries under Arizona community property laws when—when they pass away. Okay. So assets that have a basis, or a value of purchase—so the easiest example is your house, right? Sometimes it can be stock, but—so you bought your house at a certain value that is going to be subject to capital gains upon your sale, upon the sale of it, right? And so if you own the house and you live in it, you’ve got some exemption rights, but if—if you’ve lived in it for 30 or 40 years, there’s a good chance that you might be having to pay some capital gains on that, right? If one of the spouses passes away, you’re going to get a stepped-up basis. So, under Arizona community property laws, they’re taking the basis that it was at the time you bought it and bringing it up to the value—the basis or the value of the property at the time of that death.
00:13:57
Michelle Dexter: Okay? So, 100% stepped-up basis for community spouses. So if you guys own the house and it’s community property, even though, you know, in theory we’re thinking it’s 50/50, the whole house is going to get a stepped-up basis at the passing of the first spouse under Arizona community property laws. Okay? Now, the double stepped-up basis is when we’re talking about the surviving spouse now passes, the assets can get that second step up, right? So if the first spouse died in 2020, we get a step up to the 2020 value. Second spouse passes in 2027, we’re getting it ideally stepped up again in 2027, provided that property hasn’t lost value, that it’s actually uh improved in value. Right? Now, keep in mind that under Arizona community property laws, this is not going to apply for assets that are in an irrevocable trust, items that are sold or gifted, and it does not include retirement accounts. You know, retirement accounts don’t get the stepped-up basis. So, you’re talking primarily real property and then your typical non-retirement investment accounts that might have stock in it and that stock has a basis attached to it.
Real-World Case Studies: Tax Savings Under Arizona Community Property Laws
00:15:03
Michelle Dexter: Okay, so some examples for the stepped-up basis, because a lot of times people have a hard time conceptualizing this under Arizona community property laws. Keep in mind these are just kind of approximate tax figures. I’m not doing real math here. I’m just kind of doing an example. So during lifetime, husband and wife purchased their home for $100,000 and now it’s worth $800,000. If they sold the property after the exemptions, they would have capital gains on the $200,000 gain, right? So, they’ve got a house worth $800,000. They subtract out the basis, which was $100,000, and because they’re a married couple that lived in the house for two of the last five years, they get a $500,000 exemption. That results in a $200,000 gain. Okay. Federal taxes could be an additional zero to up to $64,000 or more. Uh, if they had the house long-term in Arizona, the tax could be $3,750. If it was short-term, it’d be more like $5,000. Okay? So, that’s just both spouses are alive, they decide to sell the house during their lifetime.
00:16:08
Michelle Dexter: These are some of the taxes they could be facing for—for that sale when they’ve got the growth on that property. Okay. So now we’ve got it where the first spouse dies and the new tax basis would be $800,000 under Arizona community property laws. All right. So we got that stepped up from $100,000 up to $800,000. If the surviving spouse decides to sell the house within six months of the death, there’s zero capital gains for them to pay. Okay. In addition, the spouse would still have another $250,000 exemption as long as they lived in the house for two of the five years before they sold the house, meaning the house could increase in value to $1,050,000 before capital gains would now be incurred. Okay, that can be a game-changer for surviving spouses, right? Because if they are now thinking they’re going to sell that property so that they can move to be closer to kids, or they’re going to move into an assisted living facility or an independent living facility, or they’re just going to downsize, those types of things, not having to pay those taxes…
00:17:10
Michelle Dexter: I mean, if you’re talking $64,000 plus potentially another, you know, $4,000 to $5,000, so you could be as high as almost $70,000 in taxes that you can save, that’s a huge savings and a—and a great blessing to that surviving spouse to be able to keep that money. Okay. Now, if the surviving spouse decides to continue to live in the house, and when they pass away um at the time that the second spouse dies, if the house’s value had increased to $1.3 million, that would then be the new basis for the beneficiaries, i.e., in most cases, your children, right? And so under Arizona community property laws, they would receive that second stepped-up basis. So again, if they sell the house within six months, there’s no capital gains. And that six-month rule basically comes from the IRS, which has said if you sell a piece of property within six months of the death of the owner, they’re going to consider that sale price to be the basis of the house. Um, for people that want to hold on to the houses longer than six months, typically what I’ll say to them is go ahead and get an appraisal done um as soon as you can after the death of that person, so you’ve got a good record of what that value is on the property.
00:18:18
Michelle Dexter: It’s a little bit more expensive to try to get a backdated appraisal on properties, and so it’s just easier if you know that you’re going to remain there to go ahead and get that appraisal done. Okay. Now, if you gift the house to the beneficiaries during your lifetime, the stepped-up basis provided by Arizona community property laws can be lost and the taxes could apply to, you know, $1.2 million because if the basis was $100,000 and we’ve, you know, gifted it but continued to live in it, we could have a real problem for those beneficiaries. So, I hear a lot of times people talk about, “I want to avoid probate. I’m just going to add my kids to the house,” or “I’m just going to transfer the house to my kids.” Keep in mind that that is a gift um from you to the kids, and it could trigger a gift tax return needing to be filed. Even if there isn’t a gift tax that’s required because the federal estate exemption amount is $15 million per person, there may still be a gift tax return that should be filed with regards to that.
00:19:17
Michelle Dexter: But the bigger portion of it is that they’re losing that stepped-up basis under Arizona community property laws. And so there could be a lot of capital gains that they have to pay on that property because they’re assuming the house at the basis of what you purchased the house for initially. Okay. So the scenario can also apply to stocks with a cost basis. Saving capital gains tax can be an important strategy in your estate planning because as I mentioned, if you’ve got the surviving spouse and they need to sell the—the house or stock to have money to live on, we don’t want a high percentage of that being um paid out in taxes. And if your spouse wants to sell a house to be close to family, you know, move into a smaller home or those types of things, you don’t want to have a huge tax bill that’s being associated with that at that point in time. Okay. So, the stepped-up basis provided by Arizona community property laws is really a great um benefit to those of us here in Arizona to help avoid capital gains taxes by keeping that property.
Estate Planning Pitfalls: Deeds, Blended Families, and Out-of-State Moves
00:20:18
Michelle Dexter: Now, the other thing that you want to keep in mind when you’re talking about estate planning uh when you’re talking about community property is estate planning, right? So, couples should never assume that because they live in a community property state that all their assets automatically go to the surviving spouse, because under Arizona community property laws, that is not necessarily always true. By failing to plan accordingly, unplanned-for issues may arise for the surviving spouse. So, we really want to be intentional about our estate planning. Right? So, one thing is that deeds matter under Arizona community property laws. Okay? It’s really important that you use the term “community property with right of survivorship deed” or “community property trust” to get the double stepped-up basis. Okay. A standard joint tenancy with right of survivorship deed may result in only 50% of the property getting the step-up at the first—at the first death. So you have to be intentional about what deed you’re using. Similarly, if you uh are transferring property to a trust under Arizona community property laws, you have to identify your trust beneficiaries in that.
00:21:16
Michelle Dexter: That may be you, because you’re the initial beneficiary of your own trust. But you want to make sure that you’re including that information, that you’ve got it properly. And also keep in mind that when you’ve got a right of survivorship that you’re giving, the people that are accepting that right of survivorship also have to sign off on the deed. Um, I had one recently where a gal owned her house. She was putting her kid and her significant other on the house, and so she did it as right of survivorship. She transferred it to everybody as right of survivorship. But the reality is, without the other two signing to agree to the right of survivorship, it didn’t work like that. And so it was not the result that she was intending. Okay. The second big thing when it comes to estate planning, even under Arizona community property laws, is the blended family issues. Okay. If you have children from a prior relationship and no estate plan, all right? So you have children from a—from a different person, not your current spouse, and you don’t have a will or a trust or something that directs how your assets are going to be divided upon your death…
00:22:23
Michelle Dexter: The default rule under Arizona community property laws is that your surviving spouse may only receive 50% of the assets. Okay? They’re going to receive their 50% of the community property and 50% of any separate property you may have, those assets that you brought into the marriage or that you may have inherited. Your children are going to receive your 50% of the community property and 50% of your separate property. Okay? So, we want to make sure that we are really being intentional about doing our estate plans when we’ve got blended family situations, because under Arizona community property laws, I’ve had more than one spouse—surviving spouse—come in only to learn that now their stepkids owned half the house, and with their stepkids, the relationship wasn’t that great. They wanted that house sold, and that was not the intention of the surviving spouse to sell that property. So similarly, a deed with a right of survivorship may unintentionally cut out your children. If you’re adding a right of survivorship and you’re not providing for your children from a prior relationship, the surviving spouse is going to receive everything and doesn’t have any obligation to share anything with your children.
00:23:36
Michelle Dexter: And so it can kind of work both ways, right? Where your children unintentionally don’t get anything or unintentionally do get something that you don’t intend for them to have. And so you just want to make sure that you’re really intentional about what the plan is, because for a lot of people in married situations, they are planning for their spouse first and their children second. But planning for your children may still be a priority. And so if it is, you want to make sure that you’re being intentional. Okay. The third thing that you want to keep in mind when you’re talking about estate planning is transferring from a non-community property state into a community property state. Okay. If you were married and lived in a state that is not a community property state and you moved to Arizona, that does not automatically transmute your assets under Arizona community property laws. You have to have a specific uh writing to affirmatively transmute that property—the property and the assets into community property and to be held that way.
00:24:38
Michelle Dexter: Okay, that transfer is not automatic. So, if you think you’re moving here and it’s going to change the way things are handled, that’s not necessarily true under Arizona community property laws. And so, you do want to make sure that you’re kind of intentional about that. For a lot of us, when we’re talking about our spouse and planning for our spouse, we aren’t thinking that, you know, we’re not going to have some kind of equitable distribution if—if that’s the way that things lay out. But you want to make sure that you are aware that moving to a state governed by Arizona community property laws doesn’t just automatically make everything community property.
Proactive Estate Planning Strategies Under Arizona Community Property Laws
00:24:38
Michelle Dexter: All right. So estate planning considerations when you’re talking about um yeah, surviving spouse and especially uh blended family situations and community property. So the first thing I wanted to share with you was spousal protections. Right? People who have separate property, they have children from another relationship, they have concerns about the surviving spouse spending all the money, they may want to consider a spousal protection trust. Okay. What this does under Arizona community property laws is it basically allows for the assets to be used for the benefit of the survivor if needed, while protecting the interests of the contingent beneficiaries.
00:25:46
Michelle Dexter: Okay. So when one of you passes, we basically create—they used to call them a lot AB trusts. You create the two different trusts. The A trust is the survivor’s trust; the survivor’s got full control over it. The B trust is the decedent’s trust; it’s their half of the assets. And you can kind of direct: Are those funds being used for the survivor for any purpose? Is it only being used when they don’t have anything left in the survivor’s trust? If they get remarried, can they still access any of these? And the survivor can’t change who the beneficiaries are of the assets that are left in—in the decedent’s share of the trust. And so that can be really important to making sure that we’re providing for those other children under Arizona community property laws or for your children regardless of—of whether they’re part of this relationship or a different relationship. Specific gifts are often a—a good opportunity for families to make sure that they’re kind of handling the things that they want to handle without having the kids have to wait under Arizona community property laws.
00:26:46
Michelle Dexter: So if you consider making specific gifts at your death, you can make sure that your beneficiaries receive something prior to the death of the second spouse, right? And so sometimes that can relieve some of the tension of like, “I’m not getting anything until the new spouse passes away, and now I’m anxious about what he or she’s going to do with the money, and I’m upset with my parent for not providing for me.” So for some people, especially when they have separate property—inherit separate property—if they’ve inherited something from their family, they’ve got children from a prior relationship, they may say, “You know, I inherited this money, I put it into this specific account, and at my death, even if my spouse survives me, I want this specific account to be distributed to my kids so that that inheritance continues down the bloodline and my spouse doesn’t necessarily need that money to live on. And that way my kids are getting something at my death; they’re not having to wait for the death of the second spouse.” And under Arizona community property laws, they may get more when the second spouse passes, but even if they don’t, I know that they’ve received something.
00:27:45
Michelle Dexter: And so that specific gift can often be a good way to intentionally kind of provide for that. Um, we talked a little bit before with deeds and “don’t give away the house during your lifetime.” I know that that just feels like it’s an easy fix, but if you add your kids to your deed under Arizona community property laws, they may only get a partial stepped-up basis. If you transfer the property to them during your lifetime, they get no stepped-up basis. And you need to remember the gift tax considerations. So, I really um have—I don’t think I’ve ever seen a case where I’ve said, “Yes, transfer the house to the kids right now,” that—that makes a whole lot of sense, because I think there’s just too many negative ramifications tax-wise to doing that, right? And then just keep in mind, if you don’t plan to sell the house after the death of the first one, because that general IRS rule is if the property is sold within six months of the death of the owner, the sale price will be considered to be the date-of-death value…
00:28:47
Michelle Dexter: So, if you intend to keep the house, get that appraisal done so that you have that accurate date-of-death value to use for a future sale. It’s going to save you a lot of time and headache um in trying to get a backdated appraisal in that regard.
Divorce and Asset Division Under Arizona Community Property Laws
00:28:47
Michelle Dexter: Okay. Dissolution of marriage. I know a lot of people um that come into estate planning firms aren’t necessarily thinking about the dissolution of marriage. Before I came to Keystone, I did a number of years doing family law. Um, under Arizona community property laws, the income earned during the marriage and the assets acquired with those earnings are community property and treated as though they’re equally owned by both spouses. Maintaining separate property under Arizona community property laws requires intentional and purposeful acts to keep them from being characterized as community property. And this was one of the things that I found a lot with um my—my dissolution of marriage clients: “Dad—I inherited money from dad. I put that into the house, or I put that into an account.
00:29:48
Michelle Dexter: I want that money back.” Well, unless you specifically kept that money separate under Arizona community property laws—you didn’t commingle it so that we can identify what money is yours, unless you had some agreement with them to be reimbursed for that—many times that money was not something that people could access again, and it was very frustrating and disappointing to the spouse that contributed that money, because one, they felt like, you know, that was their money that they received from their parent. They were frustrated that they didn’t know that that was the rule. Um, of course, they’re already disappointed and frustrated that they’re going through a dissolution of marriage action, so it just kind of added salt to the wound. So, I want to make sure that people understand um—and for you guys who are leaving money to your kids, help them understand, right? Even if they’re not getting their assets in a beneficiary-protected sub-trust, they can maintain those assets separately under Arizona community property laws. Even in a community property state, that is their separate property. They have to maintain it separately.
00:30:49
Michelle Dexter: So, go open up a new account. Don’t put community property into that new account. Run only separate property items through that account. And if you get to the point of where you’re going to dissolve the marriage, you’ve got the documentation and the tracking and the tracing to show under Arizona community property laws that that was your separate property and that that’s entitled to come to you and not be split between the parties as community property. So, um income is a little different. While income earned during the marriage is community property, a dissolution of marriage under Arizona community property laws does not automatically entitle your spouse to half of your income going forward. That is where support rules come into place, and there’s a lot of different things that play into spousal support and child support orders. All right. The asset split: Typically, assets will be divided equally, but the Arizona courts have the discretion under Arizona community property laws to make an equitable distribution, which does not have to mean equal, right? And so that’s something that I think that people often get frustrated with is—is that equitable um division.
00:31:52
Michelle Dexter: And then again, if you move to a community property state from a non-community property state, be intentional about whether or not you want to maintain separate property or transmute to community property, because you may have it in your head that you came from a—from a different state that was not community property and these assets that are in your name are going to be managed a certain way. Make sure that you’re not unintentionally undoing that by moving over here and—and transmuting that into community property if that is not your intention. Okay? So, you really want to make sure that you’re—you’re being intentional about that and—and just aware of how Arizona community property laws differ from non-community states.
Q&A Session on Arizona Community Property Laws
00:31:52
Michelle Dexter: All right. Um, I know that that was a bit of information in kind of a short period of time regarding Arizona community property laws. I am happy to answer questions, but do remember that this is a public forum and the video will be available on the internet going forward. Of course, if you are a client of Keystone and have specific uh situations regarding Arizona community property laws that you want to discuss, please feel free to book an appointment or contact us.
00:32:59
Michelle Dexter: We have been trying really hard, especially this year, to uh share information like this through some webinars on Arizona community property laws. And so, if you check out our YouTube channel, all of our webinars are currently on there. And then in the chat box, so down at the bottom right of your um of your screen, is a little—looks like a little word bubble from like an old cartoon. And in there, Alexis has put information about our upcoming webinars and events. Francisco’s going to be doing one next week, I believe, on intro to wills and trusts. There’s going to be one coming up on garnishments, judgments, and lawsuits. And then also we’ll be doing one, “What happens when I sell my house that’s in the trust, anything different?” Um, and so those are ones that—that we’ll be looking at going forward. And so if you’re interested in registering for those, those are in our uh chat feature right there. Um, so Bob’s asking if it’s possible to get a copy of the PowerPoint presentation. Yep, Bob.
00:33:59
Michelle Dexter: I’ll have Alexis or Gabe send that to you. Jim, you’ve got a question. Let me see if I can unmute you. Um, let me see. It looks like you might have to try to unmute yourself to ask a question. There. Did you do it?
Jim: Can you hear me?
Michelle Dexter: I can hear you.
Jim: Well, thank—thank you, Michelle, for all this. You made mention on the double step-up in cost basis under Arizona community property laws that uh community property with rights of survivorship… Does that phrase need to be on the—the special warranty deed which was recreated to include the house in the trust?
Michelle Dexter: So if the house is titled to the trust, then you don’t have to have that. There—there’s not a right of survivorship on it, and that double step-up will happen within the trust itself under Arizona community property laws. Okay. Um, it’s for those people that—that still have the house in their name. So, a lot of times when we have couples that have a mortgage on the house, they may still have the house in their name, and then they have a beneficiary deed that says when the second of them passes, then it’s going to go into the trust.
00:35:10
Michelle Dexter: And so that first initial deed where they received transfer of the property when they purchased it, that initial deed needs to indicate that it’s community property with right of survivorship under Arizona community property laws. When we um move it into a trust, it’s going to get that second stepped-up basis. And when we’ve got the beneficiary deed, that—um, that doesn’t—that doesn’t change the initial deed that is on the property, if that makes sense.
Jim: Gotcha.
Michelle Dexter: Good question.
Jim: Thank you.
Michelle Dexter: You’re welcome.
Jim: Thank you very much.
Michelle Dexter: You’re welcome. Good question, I appreciate it. Anybody else with questions? Yes, sir. Hit me up, Richard.
Richard: Hi there, Michelle. Um, I was wondering, since—since I have a trust with you already set up, recently I refinanced with a different bank. Um, does that affect my deed under Arizona community property laws? Do I have to go back and do something, or is my deed still within my trust?
Michelle Dexter: So, if we did a beneficiary deed on your house, then there’s nothing to change.
00:36:14
Michelle Dexter: Sometimes when people don’t have a mortgage and we do a special warranty deed, and then they go and refinance or take out a cash-out loan on their house, the mortgage company will make them take the house out of the trust and put it back into their names. In which case, we would need to go back and put a beneficiary deed on it. So, I would want you to take a look in the trust asset section of your binder and see if there’s a beneficiary deed or if there’s a special warranty deed. If there’s a special warranty deed, then shoot me an email and let me take a look at the uh assessor’s office and the recorder’s office to see whether or not um that was changed at all for you. Okay? But if there’s a—if there’s a beneficiary deed in your binder already, you should be fine under Arizona community property laws. It shouldn’t be a problem.
Richard: Thank you, Michelle. Appreciate it.
Michelle Dexter: You’re welcome. I saw a question in chat: “I’m an Arizona resident.
00:37:06
Michelle Dexter: My wife is a resident of another state. We own our home in Arizona. How much trouble does this cause under Arizona community property laws upon death of one spouse or dissolution of marriage?” I mean, again, John, I would make sure that you’ve got estate planning documents in place that indicate how it is that you anticipate that that house is going to be handled. Um, a lot of times when we do our estate planning documents, we will do a community property agreement or a separate property agreement under Arizona community property laws to help identify which assets are being treated as community property and which assets are being treated as separate property, if any. And so depending on what state your wife lives in and what the rules are there, I would just intentionally have some documentation in place so that everybody’s clear, whether it is a dissolution or it is a death, to make sure that everybody understands how those assets are going to be handled. Okay? Um, Mike, I saw you next, and then Jamie, I’ll come back to you. Can you unmute yourself, Mike?
00:38:10
Michael: Uh, I believe I hit a button by accident.
Michelle Dexter: Oh, okay. No problem.
Michael: I do not have a question.
Michelle Dexter: Okay, no problem. How about you, Mike? Do you have one? You can’t unmute. Can you unmute yourself? I see your lips moving, but I can’t hear you because you’re still muted. There. There should be a little—it looks like an old-time rounded microphone probably down at the bottom of your screen that maybe you can unmute, and if not, then maybe you can um put it in chat. So while you’re working on that, I’ll come over to Jamie’s question: “We currently have two homes, one in Washington State and one here in Arizona, both under a trust. Are there any specific wording under Arizona community property laws that we need to worry about?” No, I wouldn’t say that there’s any specific wording that you need to worry about. Your—your trust pretty much covers that. Um, in terms of the second step-up in Washington, that I—I don’t have any clear information on, and so it might be worth talking to somebody local in Washington to just find out how they treat that,
00:39:21
Michelle Dexter: if a—if a good uh Google search doesn’t give you some direction and some um some information to verify the information that you’re getting off of AI and through Google, to verify how that gets handled. Um, but I’m not aware of having to do anything separate in your trust to—to worry about on that under Arizona community property laws. Good question. You’re welcome. All right. And I don’t know if we just completely lost Mike or um what happened there. So, I don’t see him anymore. Good questions, though. I really appreciate the questions. It always makes it uh a much easier ending and makes me feel like people actually are getting some information out of these, which we appreciate. We always, you know, we do these with the intent of helping to educate the community on Arizona community property laws and helping make sure that we’re answering questions and giving you guys just another resource to get information from. We try to make sure that, you know, as we are getting questions from clients during the year, those are usually our topics for our um our webinars.
00:40:26
Michelle Dexter: So, if you have any questions or—or webinar suggestions regarding Arizona community property laws, please feel free to reach out and let us know. Mike, I see you’re back, but you still look like you’re muted. Oh, he figured out how to unmute it. Yay.
Mike: Yeah, I figured out how to disconnect myself from the whole thing, too.
Michelle Dexter: Well, yeah, I—we noticed that as well. That’s okay, though.
Mike: Okay. Um, I’ve recently been advised by uh a bank—my bank business manager—that the best way to avoid fraud is not necessarily through LifeLock or anything like that as far as your deed goes under Arizona community property laws. He said one of the best ways you can do that is to take out a small HELOC, a nominal HELOC on your property, say $100 or something. So, you’d pay a nominal amount per year for that. And anybody who tries to get a hold of your uh deed without you knowing about it has to go through that HELOC first. So they will stop it at the bank instantly.
Michelle Dexter: Oh, okay.
00:41:27
Mike: Does that sound like something you’ve heard of, or—
Michelle Dexter: I haven’t really heard of—of that. I know here in Maricopa County, under Arizona community property laws, they have a title alert that you can register for, and anything that gets recorded against your property, you’ll get notification of. Um, that has been uh hit-or-miss, I would say, in terms of effectiveness, because some people that have more common names may be getting a whole lot of notices for—for properties that don’t necessarily apply to them. Uh, earlier this year, they passed the rule that for us notaries, if we’re signing a new financial power of attorney or deed, we now have to get the thumbprint of those people. And so that hopefully will help a little bit. And I understand that as part of that, that the um the other counties here in Arizona are also supposed to be working on some kind of title fraud notification system as well. So, uh, you know, I—I don’t necessarily think that is a—a bad idea to—to do that if that’s what—if that’s the recommendation they’re getting.
00:42:29
Michelle Dexter: I haven’t necessarily heard of it. The problem I think a lot of times with uh fraud is that they’re not going through a title company where those types of loans would be notified and aware—you know, be made aware of a transfer. They’re just recording a deed and transferring the property type of thing. So whether or not that works in all of these types of fraud cases, I don’t know for sure. I haven’t heard any specific information on that. But I think things like it being in your trust can—can help because the documentation isn’t as easy. You know, they’ve—they’ve got to come up with more documentation to show who the trustee is and who’s signing off on it uh type of thing. But you know, right now with how it feels a little—it feels very unsettling that people can do this type of thing. I think anything that you can do within reason doesn’t—doesn’t hurt, you know.
Mike: And you have just parroted uh the meeting I went to at the bank. They had their fraud experts there.
00:43:33
Mike: They’re the ones who presented this to us, and they said the same things you do, that this thing at the—the county or the state where you put a fraud alert in, that it’s a hit-and-miss thing because so many mistakes can occur.
Michelle Dexter: Yeah.
Mike: And they emphasized that this HELOC, at least as far as their fraud people say, is an absolute stop because the bank will not release the loan on the HELOC until it’s paid.
Michelle Dexter: Yeah. I—I think the—I think the assumption there, though, is just that it’s going through a title company or going through some kind of proper channel. You know, if I just go and record a deed transferring the property title regardless of the—the HELOC or whatever other deeds of trust are on there, you know, I don’t know that that necessarily triggers it. But again, like, I think that every step you can take to try to—try to minimize the chances of fraud under Arizona community property laws can be helpful,
Mike: And it’s small anyway.
Michelle Dexter: you know.
00:44:36
Michelle Dexter: Yep.
Mike: I understand that, too.
Michelle Dexter: Yeah, exactly. Exactly. Thanks for your question, Mike. Jim, you have a question.
Jim: Yeah, Michelle, can you hear me?
Michelle Dexter: I can.
Jim: Okay. I’m told that once you create a trust, that you have to call your property insurance carrier and have the trust added as an additional insured. This—this does not happen automatically. And if you don’t have the trust listed on your property insurance, then if something was to happen, your claim will be denied because you don’t own the home, the trust does. Is that true under Arizona community property laws?
Michelle Dexter: So, with our clients that are moving their houses into their trust immediately, we are now recommending that they reach out to their homeowners insurance and add the trust as an additional insured. Um, for those of you that have beneficiary deeds that will have the house go into the trust at the death of the—of the owner or the death of the second owner, that doesn’t require the trust to be named as an additional insured. But we are recommending for people that have their houses transferred into their trust immediately under Arizona community property laws that they do reach out and add the trustee as—or the trust as an additional insured.
00:45:48
Michelle Dexter: I don’t know whether or not they’re denying the claim, but it makes it easier for your successor trustee to file the claim, to collect the—the—the claim, to do all those things in the event that you’re not able to do that.
Jim: Okay, thank you.
Michelle Dexter: You’re welcome. Neil, you’ve got a question for me. We’ll have to see if you can figure out how to unmute as well. On my screen, down at the bottom, I’ve got the red exit, and then on the far left side of that little bar is a—a little microphone, old-fashioned microphone looking thing. And maybe we just lost Neil. Let’s see. Yeah, it looks like Neil dropped off. So, probably accidentally hit the exit instead of the—the unmuting bar. But great questions, guys. I—I really appreciate um the interest in information regarding Arizona community property laws. I appreciate the questions. You know, one of the things about being part of a community is that we can really help each other with the information we hear and the experiences that we’ve had.
00:47:08
Michelle Dexter: Welcome back, Neil. Did you figure out how to unmute yourself? I wish I could unmute you for you, but I can’t.
Mike: Hey Neil, it’s the second button from the left at the very bottom. I’ve already done that.
Michelle Dexter: Thanks, Mike. Alternatively, you can try the chat box on the right-hand side. Well, while we’re waiting for Neil, just a reminder, we do uh record these webinars on Arizona community property laws and make them available on our YouTube channel. There’s the address for it. But if you just uh Google search a Keystone Law Firm YouTube channel, all of those should come up. Francisco, um who many of you know, has been doing this for—for many years. Uh, I’ve probably done more so this last year than—than prior to that. So if there’s a subject that you are interested in, take a look and see if it’s there. I think they’re just great opportunities to be able to uh review the information, rewind it, listen to it again if—if you need to, those types of things to just generally help you with being more educated about your own estate plan,
00:48:34
Michelle Dexter: being educated about your assets and your income under Arizona community property laws, which, you know, is important for everybody to do. So, Harold, do you have a question for me, sir?
Harold: Cannot trust.
Michelle Dexter: Harold,
Harold: Cannot trust.
Michelle Dexter: do you have a question? Mr. Shirley and Neil, I’ve got you, but I—I don’t know if you’ve unmuted yourself yet.
Neil: I’m here now. Can—can you hear me?
Michelle Dexter: Oh, I can.
Neil: I’m Neil.
Michelle Dexter: Yes.
Neil: Okay. Hi.
Michelle Dexter: Hi.
Neil: I’m—I’m Neil’s daughter, Melanie, and um hello. Sorry, we have
Michelle Dexter: Hi, Melanie.
Neil: an unstable connection, so I switched it to cellular. So hopefully this will work now. Thank
Michelle Dexter: Oh, perfect.
Neil: you for your patience uh and apologies in all the zapping in and out. You may have answered this
Michelle Dexter: Yeah,
Neil: question already. Um, the—the question is um… so I’m the daughter. So mom and dad have
Michelle Dexter: No problem.
Neil: a community property with right of survivorship rider on their deed um for their home under Arizona community property laws.
Michelle Dexter: Mhm.
Neil: And the question is, if one of them passes away, is it necessary to do um a date-of-death appraisal so that you can get the benefit of the step-up basis under Arizona community property laws?
00:49:49
Michelle Dexter: So, a part of that depends on whether or not you’re thinking that the surviving spouse may sell that property, right? Because if—if they’re going to sell it and not have that be the—the final place that they live, and they’re not going to sell it within the first six months, then yeah, under Arizona community property laws, it may be worth having that done just so that you’ve got the number and it makes it much easier, you know. Um, and then you also want to make sure that while they’ve got that right of survivorship between the two of them, which is great to avoid probate between the two of them, they don’t have anything necessarily that goes when both of them are gone. And so, you know, keep in mind I work in worst-case scenarios, so I apologize in advance, but, you know, they both get into a car accident and go relatively at the same time, that asset with a right of survivorship deed still goes through probate to get it to the kids. And so that’s where you’re going to want a beneficiary deed under Arizona community property laws to carry it forward for what happens to that property upon the death of the second of them.
00:50:48
Michelle Dexter: So that’s something to keep in mind. But yes, I would go ahead and if one of them passes and they plan on staying in the house, but it may not be their forever home, I would probably be inclined to go ahead and do the appraisal. It’s probably, you know, $300 to $500 type of thing, but it’s going to be much cheaper than trying to backdate it if you needed to backdate it at some point under Arizona community property laws. Hopefully, you were here for that and caught all of that, Melanie. Thanks for the question, though. Harold, I saw your hand raised, but I don’t know if you actually have a question for me. I’m going to move forward to Robert, and then I’ll—I’ll circle back to you, Harold, if you have a question. Yes, Robert.
Robert: Yes, Michelle. Um, I’m an Arizona resident, but my trust was created in Minnesota, which I just found out was an equitable distribution state. How do Arizona community property laws affect me, and what—what kind of issues do I have?
Michelle Dexter: I mean, here’s the thing. Your—your trust is going to be given full faith and credit from state to state under Arizona community property laws and federal law.
00:51:56
Michelle Dexter: So, that’s less of an issue. Um, if you’re married and you’re concerned about how it’s going to, you know, how assets are going to be distributed upon your passing if your spouse survives you under Arizona community property laws, I would definitely take a look at the language in there to say, how is it written? How is the trust written to provide for her at your passing type of thing? Here in Arizona—and this is a little bit of a—of a different webinar—there are what we call state-specific documents under Arizona community property laws. Your financial power of attorney, your healthcare power of attorney, and your living will are considered state-specific. And so those are the types of documents that—they’ll still be given full faith and credit from Minnesota as you move over here. But typically, what I say to clients is that if you’re moving someplace and you’re going to—like that’s your forever place that you’re going to live, I would get some of those documents updated over time so that when you go to the hospital here in Arizona and they’re looking for specific information under Arizona community property laws, it’s very easy on them to find what it is that they’re looking for, and they’re not trying to interpret something that Minnesota does differently.
00:52:58
Michelle Dexter: Your financial power of attorney, which is state-specific under Arizona community property laws, usually has about a five-year lifespan. Technically, the language in the—in the powers of attorney say they’re good for your lifetime. But what we find with the financial institutions is that after about five years, they may consider them to be stale.
Robert: All
Michelle Dexter: And so while, you know, it’s not something that you have to do immediately, it is something that I would encourage you to do, you know, after a few years of being here at least, uh if this is going to be your permanent place of residence.
Robert: Right. Thank you.
Michelle Dexter: You’re welcome. All right, Harold, I’m going to come back to you one more time. Um, Mike, you have a question, too. And then I see Melanie’s back on chatting. Let me—let me look at Melanie’s real quick. “Still have trouble with connectivity. You were just about to explain once both husband and wife pass what kids would be up against under Arizona community property laws.” Um, I—I was just saying that the right of survivorship deed helps with the two of them, but if you don’t have some kind of secondary beneficiary deed or it’s not going into a trust, then if something happens to the two parents and the two owners at the same time or shortly thereafter,
00:54:10
Michelle Dexter: that house is going to end up potentially in probate for the kids under Arizona community property laws. And so, Melanie, you want to make sure that there’s a little bit of a longer-term plan for that, because it’s great that, you know, it won’t go through probate for your parents. But ideally, you’ll have time when one parent passes to put something in place for when the second parent passes. But if you don’t, or if they both go quickly together, then that’s just an issue that you want to be aware of under Arizona community property laws. So keep that in mind. Mike, do you have another question for me?
Mike: Yes. Uh, we have oil and gas mineral rights in both Oklahoma and Colorado.
Michelle Dexter: Mhm.
Mike: Those—those rights are not in our trust right now. Do I have to hire a lawyer in each of those states to make… One of them told me—a lawyer down there told me, he’s the guy who did the trust or the deed in Oklahoma—that putting this in a
Michelle Dexter: Mhm.
Mike: trust under Arizona community property laws would be a real good idea.
00:55:11
Michelle Dexter: Yeah.
Mike: But how do you feel about that?
Michelle Dexter: A lot—a lot of times, those oil and mineral rights have actual deeds, and they have to be recorded in the county where that right is. And so generally, um because one, they’re very specific, and two, they’re out of state, we recommend hiring somebody local to help take care of those so that we know that it’s done correctly. Yeah. But yeah, that’s usually the only way to get those—those oil and mineral rights to be transferred into the trust under Arizona community property laws, is to record a new deed. And so working with local counsel on that is usually the—the most effective way to get that done.
Mike: And that’s the way that we could get those rights transferred to our son if the worst happens under Arizona community property laws.
Michelle Dexter: Correct. Correct. Yeah.
Mike: Okay.
Michelle Dexter: Yes.
Mike: Thank you, Michelle.
Michelle Dexter: You’re welcome. All right, Melanie, will you just make sure if you’re still on that I answered your question regarding Arizona community property laws and you got that? You can just reply in the chat.
Closing Remarks on Arizona Community Property Laws
00:56:06
Michelle Dexter: And then Harold, I saw your hand go down and then back up. So, I’m not sure if you actually have a question or don’t have a question. It doesn’t look like you’re muted, so you should be able to just chat away unless you don’t have a microphone on your computer. I don’t hear you if you are talking. So, um, Harold, if you want to shoot me an email, I’ll be happy to answer your questions about Arizona community property laws. Looks like now you’re muted. Before, you weren’t muted, but hopefully I can answer any questions that you might have. You can just shoot that to me directly unless you want to send it in the chat. Okay. Well, I appreciate you all attending today. Um, I hope that you guys found some—some new information, some good information out of this webinar on Arizona community property laws. That’s really our goal, is just to kind of keep sharing the information and educating the community, because it shouldn’t be something that only the attorneys know. It’s important that people be aware um even if they’re just aware that there’s something under Arizona community property laws that they need to learn more about, because otherwise you end up in our office and are very unhappy with the choices that you didn’t know that you were making that got made kind of for you. So here at Keystone, we appreciate your guys’ time this afternoon. Check out our webinars. This one on Arizona community property laws will probably be on the YouTube channel in about two weeks. I think that’s about how long it takes Alexis to get those posted. If you’re a client and have questions about Arizona community property laws, please reach out to us. We’ll be happy to answer additional questions, and think about signing up for those upcoming events and webinars. I know um you’ll probably get information about webinars that don’t apply to you and some that do. Just join the ones that are of interest to you, and know that if you can’t attend one live, that they are available on the YouTube channel a couple weeks after. And Bob will get that uh PowerPoint on Arizona community property laws sent over to you so you’ve got the information from it. Thank you, everybody, for your time today. We really appreciate it. Hope you have a great uh fall. Hope you’re enjoying this cooler weather, and we’ll talk to you soon. Bye.
