Community Property and Ademption: What You Need to Know

Let me tell you a story of unintended consequences in a recent case that I handled. Jim and Mary (husband and wife) each had children from prior marriages. Jim and Mary had agreed that if Mary died before Jim, the house that Mary and Jim lived in would be divided one-third for Jim, one-third for Mary’s son Michael, and one-third for Mary’s son John. In accordance with their agreement, Mary signed a will in 2001 that included the following gift of their house:

“I give, devise and bequeath my real property located at 1234 Anywhere St., Henderson, Nevada, as follows:

(a) one-third to my husband Jim;

(b) one-third to my son Michael; and

(c) one-third to my son John.”

Mary’s will then provided that all of the “rest, residue, and remainder” of Mary’s estate shall be given to her husband.

 

In 2003, Jim and Mary sold the house on Anywhere Street and purchased a new house located at 5678 Elsewhere Ln., Henderson, Nevada. Jim and Mary agreed that the Elsewhere Lane house should be titled in Mary’s name only as her “sole and separate property”. Mary later died in 2013 having never changed her 2001 will. What happens to the Elsewhere Lane house now that Mary has died? Though totally unintended by Mary, Mary’s sons, Michael and John, face two major problems.

First, Nevada law provides that all property “acquired after marriage by either husband or wife, or both, is community property” unless husband and wife otherwise agree in a written agreement between them or unless a court order says otherwise.¹⁾NRS 123.220 Community property means that both spouses have a “present, existing and equal interest” in the property, even if the property is titled in the name of only one of the spouses. ²⁾NRS 123.225 Thus, when Jim and Mary purchased the Elsewhere Lane house in 2003, because they were married when it was purchased, Nevada law treats the Elsewhere Lane house as community property even though they agreed to put the deed in Mary’s name as her “sole and separate property”.

 

The first community property problem

Now that Mary has died, the first unintended consequence arises. Even though the Elsewhere Lane house was in Mary’s name only at the time of her death, Nevada law provides that one-half of the Elsewhere Lane house is automatically Jim’s property by virtue of community property. The remaining one-half interest in the house is “subject to the testamentary disposition of the decedent.” ³⁾NRS 123.250[1] This means that Mary’s will (i.e., her “testamentary disposition”) controls what happens to only the remaining one-half interest⁴⁾As a side note, if Mary did not have a will, the remaining one-half interest would have also gone to her husband Jim, thus causing the entire house to be Jim’s property upon Mary’s death.

In other words, Mary’s will does not control what happens with the entire house, just one-half of it.

Thus, even though it appears that Mary intended for her sons, Michael and John, to each get one-third of her house, the most they can get is one-third of the remaining one-half of the house, or, in other words, only one-sixth⁵⁾1/2 of 1/3 for those scoring at home of the total house. Meanwhile, Jim gets the first one-half due to community property and at least one-third of the remaining one-half, or, in other words, a total of four-sixths⁶⁾1/2 + 1/3 of the house.

 

The second community property problem

Second, it is quite likely that Mary’s sons will receive NO interest in the Elsewhere Lane house, even though Jim and Mary agreed that Mary’s sons should each get one-third, and even though Mary put in her will that they should each get one-third. The problem arises because Mary specifically described which property she was gifting in her will. Mary said, “I give my real property located at 1234 Anywhere St., Henderson, Nevada.”  At the time of Mary’s death, Mary did not own the Anywhere Street house.

A principle of law called ademption provides that if a testator (a person who creates a will) gives a gift in the will of a specifically described property, and if the testator does not own that property at the time of her death, the gift is adeemed and the gift fails. In Mary’s case, because she described the gift as a gift of the Anywhere Street house specifically, the law provides that this gift is adeemed and has no effect at Mary’s death, as if she had never written it into her will. Consider, on the other hand, if Mary had said in her will, “I give my real property to my husband, my son Michael, and my son John in equal one-third shares.” In this situation, because Mary gave “my real property” in general, rather than a specific property, the law determines that whatever real property Mary owned at her death would be subject to the gift.

Thus, the second, and more important, unintended consequence of Mary’s will is that it is very likely that the court will determine that the gift of the Anywhere Street house is adeemed⁷⁾It is important to note that there are some narrow exceptions to the doctrine of ademption that could save the gift of Mary’s house to her sons. I will revisit those exceptions in a later blog entry. Mary’s interest in the Elsewhere Lane house would be transferred in accordance with the “rest, residue, and remainder” of her estate, which according to her will goes to Jim. Even though Jim and Mary agreed that Mary’s sons should each receive one-third of her house, and even though Mary signed a will where she surely thought that she was giving one-third of her house to each of her sons, the end result is that her husband Jim will receive the entire house because of the community property and ademption doctrines, while her sons receive nothing.

When creating a will, it is extremely important that you carefully consider the language that you use to avoid unintended consequences. An experienced estate planning attorney should advise you about the effect of the community property, and the effect of specifying gifts of property so that all of the consequences are understood and accounted for within the will.