Florida is not a community property state, but Florida law now lets married couples choose to treat certain property as community property by placing it in a Florida Community Property Trust. For the right couple, this can mean significant income tax savings for the surviving spouse.
The potential tax benefit
When someone dies, the assets they own generally receive a new tax basis equal to their value at death, which can reduce or eliminate capital gains tax when those assets are later sold. For most married couples in Florida, only the deceased spouse’s share receives that adjustment. A community property trust may allow both spouses’ shares to receive it at the first death.
For a couple holding stock, a business, or rental real estate that has grown substantially in value, the difference can be large, sometimes hundreds of thousands of dollars in taxable gain.
Who may be a good candidate?
- Married couples in long, stable marriages
- Couples holding highly appreciated investments, a business, or depreciated rental property
- Couples who expect the surviving spouse may sell assets after the first death
The trade-offs
A community property trust is not right for everyone. It can affect how property is divided in a divorce, how well assets are protected from creditors, and how a blended family’s inheritance plan works. The federal tax treatment is also not settled beyond question. These considerations must be weighed carefully against the potential tax savings.
Specific legal requirements, and why they matter
Community property trusts have highly specific legal requirements and significant legal and tax implications for both spouses. A trust that does not meet those requirements may not deliver the intended benefit, and the decision to create one affects far more than taxes.
Our attorneys are experienced at drafting community property trusts to the correct legal specifications and evaluating whether one fits your needs, your assets, and your family. Couples whose assets have not grown much may be better served by a standard revocable living trust.
Contact us today for a consultation
Call us today to schedule a consultation. We also recommend involving your tax advisor.
This article provides general information only. It is not legal or tax advice, and reading it does not create an attorney-client relationship. Every situation is different; please consult an attorney and tax advisor about yours.