No Need to Change Ownership Interest of Stocks & Bonds from Trust to CPWROS

Question: In a recent column you discussed the benefit of a husband and wife owning their home (or other real property) as community property with right of survivorship (“CPWROS”), instead of owning their home as “husband and wife,” or “community property”. This benefit is that, if a home was owned as CPWROS, after the death of the first spouse, the surviving spouse is the sole owner of the home. If the home was owned as “husband and wife” or “community property,” however, you said that after the death of the first spouse, the deceased spouse’s estate and the surviving spouse would be 50/50 owners of the home. Can personal property such as stocks and bonds also have this benefit of CPWROS? If so, should we transfer our stocks and bonds from our revocable living trust (“RLT”) to community property with right of survivorship?

Answer: First, the benefits of a husband and wife holding title to a home as CPWROS are probably only available for a home or other real property. A.R.S. § 33-433. Second, these CPWROS benefits are (1) an avoidance of probate and (2) a step-up in basis for tax purposes to the current fair market value of the home at the time of the first spouse’s death. This step-up in basis will generally minimize the amount of taxes owed on a subsequent sale of the home.

Note: If the stocks and bonds are already in your RLT, upon the death of the first spouse you should be able to avoid the requirements of probate, and you should also have the step-up in basis for your stocks and bonds.