Chapter I. Community Property Agreements

• Jurisdiction: Washington

I. COMMUNITY PROPERTY AGREEMENTS³¹⁰

I.1. In General

The statutory community property agreement is a unique³¹¹ will substitute provided for by RCW 26.16.120. This statute allows a husband and wife to contract during their joint lifetime for the vesting at death of their community property in the survivor without the necessity of an administration by the court. It applies only to agreements between husbands and wives to take effect "upon the death of either," and only to community property. Most husbands and wives, however, also contract as to the current character of their property and as to the character of property to be acquired in the future.³¹² Because such an agreement contains terms for characterizing present, future, and at-death property, and for its disposition, it has been referred to as a "three-pronged" community property agreement.³¹³

Only the at-death element is directly authorized by statute, and therefore presumably only that element must meet the formal requirements for execution that are set forth in the statute. The other elements of the three-pronged agreement are simply an outgrowth of the general power of husbands and wives to agree as to the status of their property and to transfer property between themselves.³¹⁴ This section will deal only with the statutory community property agreement and its at-death element as a will substitute, while recognizing the fact that most such agreements include the other two elements as well.

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I.2. Formalities for Execution

The statute requires that the agreement be "in writing,"³¹⁵ executed by husband and wife "under their hands and seals,"³¹⁶ and "witnessed, acknowledged and certified in the same manner as deeds to real estate...."

There must be a mutual and bilateral agreement executed pursuant to the statute.³¹⁷ The agreement must be written and signed by husband and wife; however, even though the statute says that the agreement must be "witnessed ... in the same manner as deeds to real estate," it is, in fact, no longer a requirement that the document be witnessed.³¹⁸ The deed statute was changed after the enactment of the community property agreement statute, and deeds to real estate no longer require witnesses.³¹⁹

The requirement of an acknowledgment still exists for deeds³²⁰ and therefore still applies to statutory community property agreements.

Once the agreement is executed, it may "at any time thereafter be altered or amended in the same manner."³²¹

I.3. Property Covered

The statute provides for the disposition of the community property of husband and wife. Any separate property of the deceased spouse will pass pursuant to that spouse's will, or by intestate succession. If the agreement by its terms also converts any separate property either spouse may have or acquire into community property, a nonstatutory provision,³²² then the decedent's share of such converted property also will pass to the survivor under the agreement. The statutory agreement cannot, however, pass separate property to the surviving spouse at death without first converting that separate property to

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community. In In re Brown's Estate³²³ the agreement converted the separate property to community only at the time of death.³²⁴ Although the statute refers only to the transfer of community property at death, there is no restriction on when a conversion of separate to community property takes place.³²⁵

RCW 26.16.120 also provides specifically that the agreement as to the disposition of community property upon the death of either spouse applies to any property "then owned by them or afterwards to be acquired," and it may apply to "the whole or any portion of the community property." Therefore it is possible for husband and wife to agree on the status and disposition at death of even a single community property asset (or any number of assets), leaving the remainder of the decedent's property to pass pursuant to some other dispositive scheme.

I.4.Interest Transferred

The statute does not define the type of interest that may be transferred. It remains unsettled whether contingent interests or less than fee interests may be transferred or whether any interest can be transferred to a third party through the community property agreement.³²⁶

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I.4.a.Contingent Interests

The statute refers to a transfer "upon death" to the surviving spouse. Arguably any transfer that was contingent on some postdeath event would necessarily take place sometime after death. The Supreme Court in In re Estates of Wahl³²⁷ faced the question of survivorship as a contingency. In Wahl, husband and wife executed a community property agreement at the same time that they executed codicils reaffirming their 10-year-old wills. Those wills contained survivorship clauses requiring the surviving spouse to survive 90 days to take under the will. The agreement contained no survivorship language. The husband died within 90 days of his wife, and the trial court held that the community property agreement applied at death (passing the property through the husband's estate) and that there was no property remaining for the will to control. The Supreme Court remanded the case for a factual determination whether the parties intended survivorship to be an implied term of the agreement. Implicit in the decision would seem to be a recognition of the right of husband and wife to transfer such a contingent interest by a statutory community property agreement. Whether that recognition would extend to other contingencies is yet undetermined.

I. 4.b.Less Than a Fee Interest

The statute provides for agreements between spouses as to the "disposition of the whole or any portion of the community property" then owned by them. That language clearly supports an agreement disposing of community property asset-by-asset. It also could be read, however, as permitting the conveyance of less than a fee interest, such as a life estate, in any or all assets, because such an interest is, in a property sense, a "portion" of the community property. That possibility finds some support in In re Dunn's Estate.³²⁸ The husband and wife had executed a rather complex community property agreement that was also denominated the last will and testament of each, in effect intended as a joint and mutual will.³²⁹ After agreeing that all property owned or thereafter acquired was community property, the parties agreed that the survivor could "use" and "dispose of all the community property during his or her

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life, and upon the death of the survivor, it was to pass into a trust for their children. In other words, the survivor received a life estate in the predeceasing spouse's interest in the community property, and the children received the remainder, which passed into trust (along with the survivor's share) upon the death of the survivor.

Following the death of his wife, the husband probated the will/ agreement and paid inheritance taxes on his wife's entire community property share (life estate and remainder). When the husband later died, the question arose as to how much inheritance tax was due. The Supreme Court held that the transfer of the husband's share of the property did not occur until the time of his death and was therefore taxable. It seems to have been assumed, however, that the transfer of the wife's complete interest (both life estate and remainder) took place at her death, because the husband paid taxes on it then and no attempt was made to tax it on the husband's death. If this means that the remainder passed to the children at the wife's death under the community property agreement, the case stands as some authority that less than a fee interest can be passed, and that it can be passed to a third party,³³⁰ by such an agreement.³³¹

Unfortunately, the Dunn case does not lend itself easily to this interpretation. Because the instrument in question was also intended as a will and was probated as the wife's will, it is difficult to determine how much this holding tells us about the transfer of less than a fee interest by community property agreement. The recognition of the transfer of the life estate from the wife could have been under the will as much as under the agreement. That is in fact more likely, considering that the instrument was probated. That Dunn stands for the proposition that the spouses may convey less than a fee interest by agreement, therefore, is far from clear.

I. 4.c.Transfers to Third Parties

Until 1983 the question of whether the community property agreement can be used to transfer property to a third party on the death of either the first or the second to die had never directly been faced by the court. The statute simply states that husband and wife may agree on the disposition of their community property "to take effect upon the death of either." There is no express limitation to

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transfers on the death of the first to die to the survivor. Furthermore, if the statute can be read to include any provision for a transfer on the death of the second to die, the property must by necessity pass to a third party³³² There is no legislative history on the purpose of this statute, although it is generally assumed to be intended for the expeditious transfer of community property from one spouse to another upon the death of the first to die.³³³ In a general discussion of the purpose of the statute, the court in McKnight v. McDonald³³⁴ had stated that the effect of the statute's language "is to give the parties power to make community property during life the separate property of the survivor after the death of either." ³³⁵ This implied a more limited role for the statute, that of simply conferring the separate property on the surviving spouse.

In In re Dunn's Estate³³⁶ discussed earlier, the will/agreement operated to give the surviving husband a life estate in the property...