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Separate Property Versus Joint Property in an Arizona Estate | Free Consultations

Posted on : March 14, 2017, By:  Christopher Hildebrand
Separate Property Versus Joint Property in an Arizona Estate

Separate Property versus Joint Property in an Arizona Estate

Arizona is a community property state. That means that all money earned during the marriage by either spouse belongs to both spouses equally. Money earned before marriage is separate property, and spouses can elect to hold common property as joint property instead of community property.

The way property is held determines whether it is subject to estate tax. In Greenwood v. Commissioner of Internal Revenue, 134 F. 2d 915 (1943) the Ninth Circuit Court of Appeals considered this. It was asked to determine whether certain assets were the separate or joint property for estate tax purposes.

Facts and Procedure

K. Greenwood was the administrator of the estate of his father, C. H. Greenwood. He reported that certain property, in this case, was held as community property. His father told him repeatedly that one-half was his and that one-half belonged to his wife. K. Greenwood prepared a tax return based upon one-half of the total net value of the property.

Separate Property Versus Joint Property in an Arizona Estate.

Separate Property Versus Joint Property in an Arizona Estate.

The Commissioner noticed a deficiency. He claimed that K. Greenwood had to include the total value of the property in the estate. He argued that the property was held by the spouses as joint tenants or remained the separate property of the husband. In either case, 100% would have to be included on the estate tax return.

K. Greenwood asked for a review by the Board of Tax Appeals. It determined that the property had been held in joint tenancy by C. H. Greenwood and his wife. It found that the wife had given no consideration for her interest. Therefore, the total value of the property must be included in the C. H. Greenwood’s gross estate. K. Greenwood appealed.

Community Property or Joint Property

Under the tax code, if the property is joint property or a deceased’s separate property, it is subject to estate tax. However, if a deceased and his spouse transmuted his separate property into community property, only half of it is subject to tax. In that case, the survivor owns one-half of it.

K. Greenwood argued on appeal that C. H. Greenwood and his wife understood that they owned equal interests in the property. He claimed that they always referred to it and treated it as community property.

In determining a decedent’s estate for the purpose of federal estate tax, the law of Arizona applies. Under that law, a wife has a present, existing, and equal interest with the husband in the community estate. If the property was community-owned at the time of C. H. Greenwood’s death, only one-half could be considered for federal estate tax purposes.

Evidence Regarding Community Ownership

All of the property involved in this case was originally the separate property of C. H. Greenwood. The property is securities and cash that C. H. Greenwood inherited from his mother or earned while he worked in New York.

However, in 1928, C. H. Greenwood and his wife rented a safe deposit box at an Arizona bank. They signed a declaration that they were joint tenants with right of survivorship, in all the property in it. All of the assets, including securities, documents of title, and certificates, held in C. H. Greenwood’s name at the time of his death were in the safe deposit box.

C. H. Greenwood always spoke of his property as belonging half to him and a half to his wife. He often referred to the fact that half of everything he had was hers. He always referred to the property as “community property.”

Evidence of Joint Tenancy

However, the Court found that the facts supported the Board’s decision.

• In the rental agreement signed by both parties when they rented the safe deposit box in 1928, they expressly stated that they were holding the contents as joint tenants with right of survivorship;

Separate Property in an Arizona Estate.

Separate Property in an Arizona Estate.

• the signature cards signed by each of them when the two accounts with the Tucson bank were established, one card providing that the account represented thereby was payable to “Either or Survivor”, and the other, that the account was payable to either.

• C. H. Greenwood and his wife understood that each had a one-half interest in the property.

The Court found no evidence showing a mutual intention of C. H. Greenwood and his wife to convert the property into community property. C. H. Greenwood always referred to the property as “half hers” and as “community property”. But, the Court found, those loose, oral expressions may have resulted from a misunderstanding of the law of community property.

The Court found that the rental agreement for the safe deposit box and the signature cards for the bank accounts represented contracts. In the absence of clear and convincing evidence that the parties had a contrary intent, those contracts speak for themselves.

The Court noted that K. Greenwood had the burden of proof here. It found that he failed to overcome the presumption of validity attaching to the determination of the Commissioner.

Disposition

The Court affirmed the decision of the Board of Tax Appeals.

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