Community property survivorship rights for NRI couples

Community property survivorship rights pass a couple's shared assets to the surviving spouse without probate. They don't remove estate tax: if the survivor isn't a US citizen, Section 2056(d) denies the marital deduction unless a QDOT receives the property. For NRI couples, that rule decides whether the agreement protects your spouse.

How community property survivorship rights work at the first death

What the agreement does

If you and your spouse bought a home in a community property state, the state treats what you earned during the marriage as owned equally. Nine states run on that system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. A survivorship agreement adds one instruction: the survivor takes the property.

In Texas, Estates Code Section 112.052 requires the agreement to be in writing and signed by both spouses. A joint bank account alone doesn't create one. Once it's valid, the property passes to the survivor without a court ruling.

California works differently. Civil Code Section 682.1 requires the transfer document to state that the property is held as community property with right of survivorship, and the property then passes to the survivor without administration.

Both halves get a new tax basis

Tax basis is the figure you subtract from a sale price to find your gain. Under IRC Section 1014(b)(6), the survivor's half of community property gets a new basis at fair market value when the first spouse dies.

The condition is that at least half the property was included in the decedent's estate. The statute sets no citizenship test.

Say Amit and Neha bought a Texas home for $400,000, and it's worth $1,000,000 when Amit dies. Neha's basis becomes $1,000,000, so selling at that price produces no taxable gain instead of a $600,000 one.

Where a non-citizen spouse changes the answer

Why your spouse's citizenship matters

The marital deduction normally lets one spouse leave everything to the other free of estate tax. Section 2056(d) removes it when the surviving spouse isn't a US citizen.

Whether that costs you anything depends on the first spouse's status. A US citizen or domiciliary, meaning someone whose permanent home is the US, has a $15 million exemption. So a $500,000 half of a family home owes no estate tax on its own, with or without the deduction.

When the first spouse to die is a nonresident alien

Now suppose Amit is a nonresident alien for estate tax purposes, perhaps an H-1B holder who plans to return to India. His half of the Texas home, $500,000 with no mortgage and no other US assets, sits in his US estate.

The IRS sets the Form 706-NA filing threshold at $60,000 and doesn't index it for inflation.

The bill builds like this:

Amit's estate if he is a nonresident alien

• Home value, held as community property with no mortgage: $1,000,000
• Amit's half, included in his US estate: $500,000
• Tax on $500,000 at graduated estate tax rates: $155,800
• Credit for nonresident aliens: minus $13,000
• Estate tax owed: $142,800

Neha is an Indian citizen, so Section 2056(d) blocks the marital deduction that would otherwise erase that bill. Moving Amit's half into a qualified domestic trust brings the deduction back, and Section 2056(d) lets Neha make that transfer before the estate tax return is made. The tax is deferred, not cancelled.

What a survivorship agreement does not reach in India

A US survivorship agreement governs property under US state law. Your flat, your NRE account and your Indian mutual funds follow Indian succession law instead. For Hindus, Sikhs, Jains and Buddhists, that's the Hindu Succession Act, 1956.

If there is no will, the spouse is only one of the Class I heirs, and the children and the mother inherit equally alongside the spouse. So the survivor won't automatically receive everything.

Which couples this affects

Your answer depends on where you live, the first spouse's citizenship or domicile, and the survivor's citizenship:

• Both spouses are US citizens: the marital deduction applies, so a survivorship agreement does its job.
• The survivor is a non-citizen and the first spouse is a US citizen or domiciliary with an estate under $15 million: no federal estate tax is due.
• The survivor is a non-citizen and the estate exceeds $15 million, or the first spouse is a nonresident alien: the QDOT question is live.
• You live in a common law state: community property isn't your default, so look at joint tenancy or a trust instead.

Domicile turns on where you live and whether you intend to stay, not on your visa. That's why an H-1B couple planning to return to India can fall under the $60,000 estate tax exemption even after years in Texas. Washington couples also face a state estate tax that applies separately from the federal rules.

What to do about it

1. Check how title is held on your deed, because survivorship rights exist only if the wording says so.
2. Confirm each spouse's citizenship and likely estate tax domicile with an estate attorney in your state.
3. Sign a survivorship agreement that meets your state's formalities, such as a writing signed by both spouses in Texas.
4. Add QDOT-ready language to your wills if the survivor isn't a US citizen.
5. Put a separate will in place for assets in India.
6. If the survivor expects to naturalize soon, check the naturalization exception in Section 2056(d): the marital deduction returns if citizenship comes before the return is made and the survivor lived in the US throughout.

I'd treat the survivorship agreement as a probate tool and the QDOT as the tax tool. Signing the first without planning for the second leaves a non-citizen spouse facing a tax bill and a filing deadline together. A full NRI estate plan covers both.

Your first move this week

Pull out your deed and read exactly how title is held, because that wording decides whether survivorship rights exist at all. If your spouse isn't a US citizen, I'd settle the QDOT language in your wills before anything else. InvestMates can work out with you which of the cases above is yours.