Florida Community Property Trusts: A Powerful Estate Planning Tool for the Right Couple

Many Florida residents are surprised to learn that Florida now allows married couples to create a Community Property Trust (CPT)—an estate planning strategy that may provide significant income tax benefits for highly appreciated assets.

While Florida is not traditionally a community property state, legislation enacted in 2021 allows married couples to voluntarily elect community property treatment for assets transferred into a properly drafted Community Property Trust. For the right family, this can create substantial tax savings and simplify estate planning.

What Is a Florida Community Property Trust?

A Florida Community Property Trust is a specialized trust that allows married couples to designate certain assets as community property, even though Florida is generally considered a separate property state.

Under Florida law, a married couple may transfer assets into a trust that expressly states it is a Community Property Trust. Assets held in the trust are then treated as community property for purposes specified by Florida law.

Importantly, couples are not required to place all of their assets into the trust. They may choose which assets to contribute and can maintain other assets outside the trust if doing so better aligns with their overall estate planning goals.

Why Does Community Property Matter?

The primary reason many couples consider a Community Property Trust is the potential for a full step-up in income tax basis when the first spouse dies.

Under traditional ownership structures, only the deceased spouse's portion of jointly owned property may receive a basis adjustment at death. In contrast, community property can potentially receive a 100% step-up in basis, meaning the entire asset is adjusted to its fair market value as of the deceased spouse's date of death.

This can dramatically reduce or even eliminate capital gains taxes if the surviving spouse later sells the asset.

Example

Assume a married couple purchased investment property for $200,000 many years ago. At the death of the first spouse, the property is worth $1,000,000.

Without community property treatment, only part of the gain may be eliminated.

With a properly structured Community Property Trust, the entire property may receive a basis adjustment to $1,000,000, potentially saving the surviving spouse tens or even hundreds of thousands of dollars in future capital gains taxes.

Additional Benefits of a Community Property Trust

1. Simplifies Basis Planning: Many estate plans require careful coordination of asset ownership between spouses to maximize tax benefits. A Community Property Trust can provide a more straightforward method of achieving favorable basis adjustments without complex ownership restructuring.
2. Reduces the Need for Asset Tracing: For couples who have lived in multiple states, determining whether assets are community property or separate property can become a complicated exercise involving years of financial records.
3. Creates Clear Evidence of Intent: By signing a Community Property Trust agreement, both spouses clearly express their intention that certain assets be treated as community property.
4. Preserves Florida Homestead Protections: Florida law specifically provides that homestead property transferred to a Community Property Trust may continue to qualify for Florida homestead protections and exemptions.
5. Flexibility: Unlike traditional community property states, Florida's Community Property Trust statute allows couples to be selective, transferring only the assets most likely to benefit.

Who Might Benefit Most From a Florida Community Property Trust?

A Community Property Trust may be particularly valuable for:

• Couples with highly appreciated assets (Investment real estate, rental properties, stocks, family businesses, valuable collectibles).
• Long-term married couples focused on estate planning and tax efficiency.
• Couples who own concentrated investment positions.
• Couples with rental properties.
• Former residents of community property states (e.g., California, Texas, Arizona).

Important Considerations

Florida law requires that a Community Property Trust:

• Be signed by both spouses;
• Expressly state that it is a Community Property Trust;
• Have at least one qualified Florida trustee; and
• Contain statutory disclosures informing the spouses of the consequences.

Because a Community Property Trust can affect rights between spouses, creditor rights, and the disposition of assets at death or divorce, it should only be implemented after careful review with experienced estate planning counsel.

Is a Florida Community Property Trust Right for You?

If you are interested in learning whether a Florida Community Property Trust may be appropriate for your family, book a Peace of Mind Planning Session below to evaluate how this strategy fits within your overall estate plan.