Understanding Community Property and Ademption

Some elements of the law get confusing simply because they involve too many “what ifs” while others are confused by the terms involved. When both of these confusions show up, it can take a lot of explaining to get a point across. To simplify this topic, the following hypothetical scenario is presented to create some grounding.

This is a story of unintended consequences. Jim and Mary, newly remarried, each had children from prior marriages. Jim and Mary agreed that if Mary died before Jim, the house that Mary and Jim live in would be divided one-third for Jim, one-third for Mary’s son Michael, and one-third for Mary’s son John. They go to an estate planning attorney to create a will. In accordance with their agreement, Mary signed a will in 2001 that included the following gift of their house:

Mary’s will then provided that the rest, residue, and remainder of her estate shall be given equally to her sons.

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, Jim and her two sons face two major problems.

First, Nevada law provides that all property “acquired after marriage by either husband or wife, or both, is community property” (NRS 123.220). Unless husband and wife otherwise agree in a written agreement between them or unless a court order says otherwise the statute controls estate distribution. 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 (NRS 123.225). When Jim and Mary purchased the Elsewhere Lane house in 2003, because they were married when it was purchased, Nevada 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.

Problem One: Community Property

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” (NRS 123.250[1]). Mary’s will only applies to the remaining one-half interest. Note, if Mary did not have a will, the remaining one-half interest would also go to her husband Jim. Spousal rights would cause the entire house to be Jim’s property upon Mary’s death.

Under community property, Mary’s will does not apply to the entire house, just one-half of it.

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. If the house is worth $120,000, they would each get $20,000 or one-sixth of the total house. Meanwhile, Jim gets one-half due to community property and one-third of the remaining half, $80,000 (4/6ths).

Problem Two: Ademption

Now the second unintended consequence happens. At the time of Mary’s death, Mary did not own the Anywhere Street house. In her last will and testament Mary stated, “I give, devise, and bequeath my real property located at 1234 Anywhere St., Henderson, Nevada.” Under the legal principle of ademption if a testator (a person who creates a will) gives a gift in the will of a specific property, and if the testator does not own that property at the time of their 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. It is as if she had never written it into her will. The law does this to prevent issues in which a property could be sold and then recollected. While protecting one interest, that of the buyer and the seller, it creates a problem for the spirit of a gift in an estate.

Consider, if Mary had stated in her will, “I give my house to my husband, Jim; my son, Michael; and my son, John in equal one-third shares.” In this situation, because Mary gave “house” in general, rather than a specific property, the law determines that whatever house Mary owned at her death would be subject to the will. As it stands, it is quite likely that Mary’s sons will receive NO interest in the Elsewhere Lane house. Jim could divide the estate equally in his own will or upon the sale of the house as there is nothing that prevents him from making decisions about what becomes his property.

Why Legal Advice Matters

Mary’s interest in the Elsewhere Lane house would be transferred in accordance with the rest, residue, and remainder of her estate. According to her will this would provide anything not covered by the will and community property equally to he sons. 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 receives 4/6ths of the house because of the community property and ademption doctrines but her sons at least receive their $20,000 share of the house. If this clause was not suggested by an attorney, the entirety of the estate would end up with Jim.

The more through and granular a will is, the more likely that unintended consequences will be avoided. When creating a will, it is important to carefully consider the language used. An experienced estate planning attorney at Clear Counsel Law Group can advise you about state laws including community property, ademption, and more to ensure that your assets are accounted for and your wishes are respected.