Janet and Bobby G. were living in Texas when they started their life together as man and wife. After 20 years, they moved to Florida. As a married couple living in Texas, most of their assets were considered community property, but Florida is not a community property state. As new Florida residents, they needed to explore the potential benefits of a community property trust.
Most assets acquired during a marriage, including most income, are considered community property. In other words, such property is jointly owned by the spouses. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Assets brought into a marriage or inherited by one spouse are considered the separate property of that spouse. However, separate property can convert to community property under certain conditions.
This joint revocable trust may be particularly helpful for couples that own low-basis, highly-appreciated assets which they intend to keep until the first spouse passes.
Janet and Bobby G. purchased real property valued at $300,000 over 20 years ago. When one spouse, Janet, passes away, her half of the property receives a new basis as of the date of her death. Bobby’s half of the property does not. If he sells the property at its current value of $2.5 million, he may have a hefty capital gains tax bill.
The outcome may be far more favorable if they transfer the property to a community property trust. When Janet passes away, the entire property receives a new basis and is revalued as of the date of her death. If Bobby sells the property at that point, or shortly thereafter, there will be minimal capitals gains tax exposure.
This trust is certainly not for everyone. Only use a community property trust after carefully consulting with your estate planning attorney and financial advisors.
As a Florida attorney board certified in Wills, Trusts & Estates, Attorney John Mangan offers effective estate planning to his clients. To schedule an appointment, call us at 772-324-9050 or fill out our Contact Form. Our office is conveniently located in Palm City, Florida.