A community property agreement is a contract between spouses that many married couples and Washington registered domestic partners will include in their estate plans to avoid a probate when the first spouse dies. A typical community property agreement will state that everything each spouse owns when the agreement is signed is community property, that everything each spouse acquires after signing the agreement will be community property, and, finally, that when one spouse dies, all the community property goes to the surviving spouse.
This post isn’t about the ins and outs of community property. (You can read Stacey’s post on that topic here.) Instead, it’s about what happens when a community property agreement and a will do not appear to be consistent. For example, what if a community property agreement and a will require a spouse to survive the other by different periods of time in order to inherit? Division One of the Washington Court of Appeals addressed this question in its recent decision, Radliff v. Schmidt. In Radliff, a married couple, Herbert and Eileen Royster, executed Wills in Oregon which required a beneficiary to survive them by four months to inherit. They later moved to Washington and executed a community property agreement, which required one spouse to survive the other by at least 30 days to inherit. Eileen died first, and Herbert died 75 days later.
Under the community property agreement, Herbert would inherit all of Eileen’s community property and everything would be distributed under Herbert’s will. Under Eileen’s will, however, Herbert did not survive long enough to inherit, and Eileen’s share of their community property would be distributed to her son, Jeffrey Radliff, who was the contingent beneficiary under her Will. Herbert executed a new will following Eileen’s death that left just $1,000 to Jeffrey and the rest of his estate to other beneficiaries. If Herbert inherited under the community property agreement, his will would distribute all the joint community property, and Jeffrey receive just $1,000. If Eileen’s will’s survivorship provision controlled, then Jeffrey would inherit all of Eileen’s community property and Herbert’s will would only distribute his half of the community property.
Enough assets were at stake for Jeffrey to file a petition under the Trust and Estate Dispute Resolution Act (TEDRA). The trial court found that the conflict in survivorship provisions created an ambiguity that meant the court could review outside evidence to determine what Eileen intended. After reviewing this additional evidence, the trial court ruled in Jeffrey’s favor that the Will controlled. The Court of Appeals disagreed.
At its heart, Radliff is a contracts case. A court reviews a community property agreement by applying principles of contract law. Why? Because community property agreements are contracts. When interpreting a contract, the court noted that “an ambiguity should not be read into a contract where it can reasonably be avoided by reading the contract(s) as a whole.” Here, the community property agreement included a disclaimer provision which provided that the surviving spouse may disclaim any interest passing to them under the community property agreement. The disclaimed interest would then be distributed under the deceased spouse’s will. The court concluded that because the disclaimer presents an opportunity for the surviving spouse to make a choice, there was no conflict – and thus no ambiguity – between the community property agreement and the will. A spouse could survive for 30 days and make a disclaimer, causing the will’s survivorship provision would then kick in. The result? Because Herbert survived Eileen by more than 30 days and did not make a disclaimer, he inherited by way of the community property agreement and the probate of Herbert’s estate would distribute their joint assets under Herbert’s will.
This case illustrates why it is important to have a thorough understanding of your estate planning documents. Community property agreements are deceptively simple. Did Eileen understand the different survivorship provisions in her community property agreement and her will? Did she know that Herbert could change his will after her death and the impact that would have on her son? Do you have questions about a community property agreement? We’re happy to discuss.
This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.