Florida Community Property Trusts – Legal and Tax Issues

Introduction

Community Property.  Under Florida’s new Community Property Trust Act (“Act”), a married couple may establish community property in Florida.  Although Florida is not a community property state, a married couple can now create community property through a community property trust established under the Act (“CPT”).[1]

Why Utilize a CPT?  The primary purpose of the Act is to permit the establishment of community property within the meaning of I.R.C. §1014(b)(6), which can save significant income taxes on the death of the first spouse.[2] 

Purpose of this Outline.  The potential income tax benefit of a CPT is easy enough to understand and compelling enough for married couples to consider.  However, CPTs are not easy or simple.  The purpose of this outline is to identify the legal and tax issues that may be encountered in representing spouses in connection with CPTs. 

Example. A married couple starts a new business and has a combined basis of $1 million in their shares.  There are 100 shares issued and outstanding, and each spouse owns 50 shares.  Years later, the business appreciates in value, one spouse dies, and the fair market value of the business is $8 million.  The surviving spouse wants to sell the business and slow down.[3]

• Taxes Without CPT.  The basis of the deceased spouse’s 50 shares will be increased to $4 million, and the basis of the surviving spouse’s 50 shares will continue to be $500,000.[4]  As a result, if the surviving spouse sells the business, there would be a taxable gain of $3.5 million.[5]
• Taxes with CPT.  However, if the spouse’s 100 shares in the business were considered community property for federal income tax purposes, the basis in the surviving spouse’s 50 shares in the business will also be increased to $4 million (this is often referred to as the “Double Step-Up”).[6]  In this example, $3.5 million of gain would have been eliminated if the spouses’ shares in the business were considered to be community property for federal income tax purposes.  As a result, if the surviving spouse sold the business, there would be $0 gain and $0 income taxes.

Utility of the Double Step-Up. 

• Sale by Surviving Spouse Required.  It is important to note that the Double Step-Up is only helpful if the surviving spouse actually sells the appreciated property.  However, even if the appreciated property is not sold, the surviving spouse will benefit from having the option to sell appreciated assets without income taxes.  Providing options, flexibility, and peace of mind for the surviving spouse is an important part of estate planning for most married couples.
• Younger Couples with Long Life Expectancies.  CPTs may not be very exciting for younger couples.  If both spouses are relatively young with normal life expectancies, their appreciated assets will likely be sold and new assets purchased over time (with a new cost basis).
• Certain Asset Classes Do Not Benefit.  It is important to note that retirement accounts, qualified plans, IRD items, and life insurance will not benefit from the Double Step-Up.

Designing Your CPT. A CPT can be designed as a special purpose trust to hold significant low-basis assets with the goal of receiving a Double Step-Up on the death of the first spouse.  Then, after the death of the first spouse, the CPT can be terminated, and one-half can be distributed to each spouse’s separate revocable trust.  This structure will achieve the Double Step-Up, and, at the same time, utilize separate revocable trusts to implement the dispositive provisions of the estate plan.  Using separate revocable trusts (as opposed to a joint trust, like a CPT) will simplify drafting and minimize the risk of mistakes.[7] 

Transaction Costs. It is important to note that the planning and administration associated with the CPT will continue after the death of first spouse.  Specifically, the surviving spouse and his or her advisors will need to establish the cost basis for the assets owned by the CPT, appropriately report such basis on the applicable post-death tax returns, be prepared to respond to any audits, and make sure the parties are aware of associated tax risks and uncertainties. 

Issues In Creating A CPT

Background.  The requirements for establishing a CPT are set forth in Fla. Stat. §736.1503.  The requirements are fairly straightforward.  However, there can be issues and there are potential traps.

New Trust Agreement Required.  Pursuant to Fla. Stat. §736.1502(2), a CPT must be created after July 1, 2021.  Based on this language, it appears that an existing, pre-July 1, 2021, joint revocable trust cannot be restated to establish a CPT.[8] 

Example. A married couple who previously resided in a community property jurisdiction and recently moved to Florida comes to you for advice.  The couple had already established (before 2021) a joint revocable trust.  Can their existing joint trust be amended and restated to qualify as a CPT?  Likely not.[9]  It appears that the trust would not meet the requirements set forth in Fla. Stat. §736.1502(2).  This can be a significant downside for spouses who do not want to incur the time and expense associated with re-titling their assets from their existing joint trust to a new CPT.

Font and Location Matter.  Every CPT must include the language set forth in Fla. Stat. §736.1503(4); or, language that is “substantially” similar.  Importantly, the required language must be added in “capital letters” and “at the beginning” of the trust agreement.  This could be a trap.  For example, if another lawyer in your firm is using your form, and that person decides to make the capitalization uniform throughout the document, the trust may not qualify as a CPT.

Formalities Required for Execution.  A CPT must be signed by both spouses.  However, the formalities required for execution depend on whether the CPT is revocable or irrevocable.[10]  The testamentary aspects of a revocable CPT are subject to the execution requirements of Fla. Stat. §736.0403, which require the same formalities as a will. 

• Revocable Trust.  A revocable trust means that the trust is “revocable by the settlor without the consent of the trustee or a person holding an adverse interest.”[11]  What if the CPT can only be revoked if both spouses agree in writing?  If one settlor spouse wants to revoke the trust, and the other does not, is the other settlor spouse “a person holding an adverse interest”?  If the answer is yes, is the CPT still a revocable trust for purposes of the CPT execution requirements? 
• Irrevocable Trust.  If the goal is to establish an irrevocable CPT, it is important to note that there are limits set forth in the Act.  Even if the CPT is irrevocable, after the death of the first spouse, the surviving spouse can amend the CPT with respect to such spouse’s one-half share.[12]  In many cases, the spouses will want the entire CPT to be irrevocable, especially after the death of the first spouse, to protect the assets from being diverted to persons not intended to be beneficiaries.  It is important to note that this is not possible under the Act.[13]

No Consideration Needed.  No consideration is required to establish or enforce a CPT.[14]  In funding a CPT, one or both spouses may contribute property to the trust.

Inadvertent Modification to Existing Marital Agreement.  Married couples with an existing premarital or postnuptial agreement will need to carefully consider the impact of establishing and funding a CPT.  Similarly, if the married couple intends to enter into a postnuptial agreement after establishing a CPT, the impact of that agreement on the CPT will need to be evaluated in advance. 

Issues in Enforcing CPTs

Background.  For the reasons set forth below, a court may find that a CPT is not enforceable. 

• Trust is Unconscionable.  If a spouse can prove that the CPT was unconscionable when it was made, it will not be enforceable.[15]  Pursuant to the statute, a court will be able to look into the facts and circumstances at the time the CPT was established, even if that was years earlier.
• Not Executed Voluntarily. If a spouse can prove that the CPT was not executed voluntarily, it will not be enforceable.[16]
• Fraud, Duress, Coercion or Overreaching.  If a spouse can prove that the CPT was the product of fraud, duress, coercion or overreaching, it will not be enforceable.[17]
• Lack of Financial Disclosure.  If a spouse can prove that the spouse was not given fair and reasonable disclosure of the property and financial obligations of the other spouse before executing the CPT, it will not be enforceable.[18]  The best course of action is for each spouse to provide full financial disclosure prior to entering into the CPT.  The disclosures required are the same as the disclosures required in connection with a Florida postnuptial agreement.
• Not Voluntarily Waive Disclosure.  If a spouse can prove that the spouse did not voluntarily waive the spouse’s rights to fair and reasonable disclosure of the property and financial obligations of the other spouse before executing the CPT, it will not be enforceable.[19]
• No Notice of Financials.  If a spouse can prove that the spouse did not have notice of the property and financial obligations of the other spouse before executing the CPT, it will not be enforceable.[20]
• Revocation by Surviving Spouse.  Any provision in the CPT that attempts to limit a surviving spouse’s right to revoke the CPT as to the surviving spouse’s one-half share will not be enforceable.[21] 
• Independent Counsel.  Spouses are not required to have independent counsel.  If the only evidence a spouse has in attempting to prove unenforceability is the fact that the spouses used the same lawyer (or law firm), that fact alone will not be enough to prove unenforceability.[22]  Of course, if there are other facts supporting a claim of unenforceability, the fact that both spouses used the same lawyer will not be helpful to the spouse seeking to uphold the CPT.

Dealing with the Risk of Unenforceability.  The issues and considerations involved in determining whether a CPT is enforceable are analogous to those present when representing spouses in connection with premarital agreements and postnuptial agreements.  For this reason, lawyers should consider incorporating the same practices, including, careful compliance with the financial disclosure rules and recommendations, separate counsel for each spouse, and documenting that each spouse was fully apprised of the legal and tax consequences of entering into the CPT, and that each spouse had ample time to consider their decision.

Terms in Violation of Public Policy.  There is significant flexibility for spouses entering into a CPT agreement.  However, keep in mind that the terms cannot “violate public policy or general law imposing a criminal penalty, or result in the property not being treated as community property under the laws of a relevant jurisdiction.”[23]

Conflict of Laws.  Although at least one trustee must be a Florida trustee (defined in the Act as a “qualified trustee”), it is possible for spouses residing in another state to establish a CPT.[24]  If the CPT is established by spouses living outside of Florida, the parties will need to evaluate whether Florida law applies for all purposes of the Trust.

Limited Creditor Protections

Lack of Protection.  If protection from future creditor claims is an important goal, a CPT is likely not the best option.[25]  Similar to property owned by the spouses as tenants-in-common, each spouse’s one-half share of the CPT (other than Florida homestead property) may be available to satisfy a spouse’s (or a spouse’s estate’s) individual obligations.[26]  Query, what happens when a creditor of one spouse is paid from that spouse’s one-half share of the CPT?  How are the remaining assets of the CPT owned?  Should there be a separate accounting of the debtor spouse’s reduced interest in the CPT?  In the case of an obligation incurred by both spouses, the entire CPT (again, other than Florida homestead) may be available to satisfy such claims.[27]

More Protection with TBE While Both Spouses are Living.  Greater protection can be achieved by the spouses through joint ownership as tenants by the entireties (“TBE”).[28]  TBE property may not be used to satisfy either spouse’s individual debts (but may be used to satisfy a joint liability).[29]  However, keep in mind that TBE ownership has one major downside.  If the spouse with no liabilities dies first, the assets become owned by the debtor spouse, which could then subject all of the couples’ assets to creditor claims after the death of the non-debtor spouse.  The couple would have been in a better position with a CPT.  At least the non-debtor spouse’s one-half could be transferred to an irrevocable trust for the benefit of the debtor spouse.

Multi-Member LLC Option. It may be possible to increase the level of asset protection that can be provided with a CPT by incorporating a Florida limited liability company (“FLLC”).  For example, if spouses established a CPT with property having a fair market value of $1 million, a future creditor seeking to enforce a judgment against one spouse would be able to access $500,000 of such property.  However, if the spouses established a CPT with interests in a multi-member FLLC that owns property having a fair market value of $1 million, the creditor may be limited to obtaining a charging order against that spouse’s one-half interest in the FLLC (provided it is then considered to be a multi-member LLC).[30]  It is not clear if an FLLC owned 100% by a CPT will be considered a multi-member LLC.  It is possible that the FLLC will be treated as a single-member LLC, and therefore its owners would not have the same protections as the owners of a multi-member FLLC.  To ensure that the FLLC owned by the CPT will be treated as a multi-member FLLC, each spouse should retain an ownership interest in the FLLC.  If the FLLC is owned in part by the CPT, and in part by each spouse individually, a creditor seeking to collect on a judgement against one of the owners should be limited to a charging order as its exclusive remedy.[31]  Of course, if the FLLC is owned by the CPT and at least one other third party, it will also be considered a multi-member FLLC.

Trust for Surviving Spouse. The deceased spouse’s one-half of the CPT can be devised to an irrevocable trust for the surviving spouse that is protected from creditor claims and divorce from a subsequent spouse.  However, the surviving spouse’s one-half of the CPT will be subject to amendment by the surviving spouse, and, as a result, will not be protected from the surviving spouse’s creditor claims.[32]  For clients seeking to maximize funding to an irrevocable trust for the surviving spouse to protect against remarriage, creditors and capacity issues, this can be a disadvantage.

Homestead.  Pursuant to Fla. Stat. §736.151, Florida homestead property transferred to a CPT will maintain its protections and exemptions as if owned by one or both of the settlor spouses.  Note, however, that in the case of homestead property that exceeds the applicable acreage limits, TBE ownership may be the better option.  Also, keep in mind that Florida homestead is the only asset type expressly designated as exempt from creditor claims; there are no similar provisions expressly authorizing protections for life insurance, annuities or other exempt assets.

Fraudulent Transfer.  Married couples with creditor issues should proceed with caution before transferring their Florida homestead to a CPT.  It is possible that such transfer will be reversed by a creditor if determined to be a fraudulent transfer.[33]

Homestead Devise Limitations

Background. As Florida real estate continues to increase in value, the likelihood that a married couple will have significant built-in gain (over and above the amount that can be excluded under I.R.C. §121) will continue to increase.  From an income tax planning perspective, the couples’ Florida homestead may be an attractive asset for a CPT (and the Double Step-Up).      

Devise limitations.  Any property owned by a CPT that would otherwise qualify as homestead if owned by one or both of the spouses directly will be treated as homestead for devise and descent purposes.[34] As a reminder, Florida homestead may not be devised if the decedent is survived by a spouse or minor child.[35]  However, the homestead may be devised to the surviving spouse if there is no minor child.[36] 

Division of Homestead on Death of First Spouse (No Minor Child).  Assuming the first spouse dies without a minor child, and assuming the only asset owned by the CPT is the Florida homestead of the married couple, then on the death of the first spouse to die, one-half of the Florida homestead is “the share of the surviving spouse” and the other one-half is “the share of the decedent spouse.”[37]

• The Share of the Surviving Spouse.  Is the vesting of the share of the surviving spouse in the Florida homestead a “devise” for purposes of Section 4, Article X of the Florida constitution?  Does it matter whether the surviving spouse’s one-half interest in the Florida homestead is devised directly to the surviving spouse on the death of the first spouse to die?  Or, can the surviving spouse’s one-half interest continue to be held in the CPT, which is subject to revocation by the surviving spouse?  There is no specific guidance on these issues; the intermingling of homestead and community property has created new issues to consider.[38]
• Share of the Decedent Spouse.  One-half of the Florida homestead is the share of the decedent spouse, and subject to testamentary devise.  If the decedent spouse’s one-half share is not devised directly to the surviving spouse (outright and free of trust) there will be an invalid homestead devise.     

Planning Options to Avoid Homestead Devise Limitations on the Death of the First Spouse (No Minor Child).

• Homestead Waiver Agreement.  Of course, a spouse can waive his or her homestead rights and devise limitations by agreement.  A homestead waiver agreement entered into by the spouses after the marriage should be signed with the same formalities and disclosures as a post-nuptial agreement.
• Homestead Waiver by Deed.  Homestead devise limitations can also be waived by the spouses in the deed transferring ownership to the CPT.[39] 
• Distribution of the Entire Homestead Directly to the Surviving Spouse on the Death of the First Spouse to Die.  The CPT can be drafted to comply with the Florida devise limitations applicable to the decedent spouse’s one-half share.  The CPT can direct that upon the death of the first spouse, the decedent spouse’s one-half share in the homestead property be devised to the surviving spouse, outright and free of trust. 
• Exception for Irrevocable Trusts.  Can a CPT be made irrevocable to avoid the homestead devise limitations that would otherwise apply on the death of the first spouse?[40]  Remember, the surviving spouse must have the power to amend the CPT with respect to the surviving spouse’s one-half share after the death of the first spouse.[41]
• LLC Ownership Coupled with 99-Year Lease.  If the homestead is owned by an FLLC with the CPT as its sole member, the homestead will not be subject to devise limitations.  However, without more planning, the homestead will also not qualify as homestead for ad valorem tax purposes.  If the spouses entered into a 99-year lease with the FLLC, the spouses’ interest in the lease would qualify for homestead ad valorem tax treatment.[42]

Division of Homestead on Death of First Spouse (With a Minor Child).  Assuming the first spouse to die was survived by a minor child, and assuming the only asset owned by the CPT is the Florida homestead, then on the death of the first spouse, one-half of the Florida homestead is “the share of the surviving spouse” and the other one-half is “the share of the decedent spouse.”[43]

• The Share of the Surviving Spouse.  Same analysis as above with respect to “the share of the surviving spouse.”
• The Share of the Decedent Spouse.  One-half of the Florida homestead is the share of the decedent spouse; the decedent spouse’s one-half interest in the homestead would not be subject to devise.^[44]  As a result, the surviving spouse would receive a life estate in the decedent’s one-half (which would be the same result if the homestead was owned by the spouses directly as tenants-in-common).^[45]    

Can Post-Death Funding be Used to Avoid Homestead Devise Limitations When Other Assets are Available to Fund the Decedent Spouse’s One-Half Share?  Assuming the decedent spouse was not survived by a minor child, and assuming the CPT owns the Florida homestead of the married couple as well as other assets of the same or greater value, then, on the death of the first spouse to die, can the Trustee allocate 100% of the Florida homestead to “the share of the surviving spouse” and an equal value of other assets to “the share of the decedent spouse?” 

• Funding of Shares.  Pursuant to Fla. Stat. §736.1507 “the trustee has the power to distribute assets of the trust in divided or undivided interests.”  Furthermore a “distribution in kind may be on the basis of a non-pro rata division of the aggregate value of the trust assets.”
• Vesting of Florida Homestead.  However, protected Florida homestead vests immediately on death.[46]  In one case, the court noted that title vests “in the twinkle of an eye.”[47]  When and how does protected Florida homestead vest in the case of CPT?  Is the vesting delayed until after the trustee decides to allocate the Florida homestead to one, or the other, or both spouses’ shares? 
• Will Non-Pro Rata Funding Affect the Double Step-Up? According to one practitioner, if the entire protected homestead is allocated to the surviving spouse’s share to avoid the homestead devise limitations, there would be “no basis adjustment to the homestead property because less than one-half (actually none) would be included in the deceased spouse’s gross estate.”[48]  Query, is it the case that any property allocated exclusively to the surviving spouse’s share will not receive a step-up?  Or, is the legal interest for purposes of I.R.C. §1014(b)(6) each spouse’s one-half interest in the CPT?  If the analysis is made on an asset-by-asset basis, then a non-pro rata funding may be problematic.  To avoid this issue, consider requiring that one-half of each asset in the CPT be allocated to each spouse’s one-half share of the CPT on the death of the first spouse to die.  This would also be more in keeping with the treatment of community property on the death of the first spouse in community property jurisdictions.

Income Estate, Gift and GST Tax Issues

Other Available Options.  There are other ways to achieve a step-up in basis at death on appreciated assets.

• Ownership by Spouse with Shorter Life Expectancy. The same income tax benefits can be achieved by simply titling the appreciated property in the name of the spouse that will die first.  In addition to achieving a full step-up in basis on appreciated assets owned by the first spouse to die, the assets can be transferred to a trust for the surviving spouse that can provide significant creditor protection.  However, this can be a difficult plan to successfully implement for several reasons.  First, the tax laws do not allow a step-up in basis for deathbed transfers.  Specifically, I.R.C. §1014(e) will prevent a step-up in basis if appreciated property was transferred to the deceased spouse within one year of death, and that same property is devised back to the transferor spouse.  However, there are ways to avoid the application of I.R.C. §1014(e).  For example, devising such assets to other beneficiaries (which can be accomplished directly, or through post-death qualified disclaimers by the surviving spouse), and devising the assets to a trust for the surviving spouse, provided the trust was structured to avoid (or minimize the risk of) implicating I.R.C. §1014(e).  Second, a spouse may be hesitant to transfer all of his or her appreciated property to the other spouse (who would then be in complete control, could subject the property to creditor claims, etc.).  Finally, predicting the order of death is difficult.  It is always possible that the spouse with the shorter life expectancy will survive the spouse that is expected to live longer.
• Inclusion of Assets in Estate of Senior Family Member.  In some cases, there may be an opportunity for a full step-up in basis on appreciated assets owned by the married couple while both spouses are living.  Of course, this would be preferable to waiting on the step-up in basis until the death of the first spouse.  This can be accomplished by gifting assets to senior family members or establishing a specialized trust with a senior family member holding a general power of appointment.  This type of planning is called “upstream basis planning.”[49] 

Will the CPT Work? Much has been written on this issue.  The bottom line is that there is no court case or IRS authority directly supporting the intended tax treatment of property owned by a CPT.  As result, the federal tax treatment of property owned by a CPT on the death of the first spouse is uncertain.  Although many accomplished lawyers believe appreciated property owned by the CPT should be treated as community property under I.R.C. §1014(b)(6), CPTs are untested.  The bad news is that the parties will not know whether the CPT worked as intended until after the three-year IRS statute of limitations has passed on the federal income tax return(s) filed to report the sale of the surviving spouse’s one-half interest in the CPT.  The good news is that more IRS guidance on this issue is likely.  With the enactment of this new planning tool in Florida, the use of CPTs will become more widespread, and it is likely we will start to see cases, audits, rulings and other guidance from the IRS.

• What if the CPT Does Not Work? 
  • Federal Income Tax.  The surviving spouse may be worse off from an income tax perspective.  For example, if the spouses contributed their Florida homestead to the CPT and no other property, and if the CPT does not “work,” then the one-half interest owned by the surviving spouse will not receive a step-up in basis.  Although this would be the same result as if the property were owned jointly by the spouses outside of the CPT, the value of the one-half interest allocated to the deceased spouse’s share will be reduced by valuation discounts applicable to fractional interests in real estate.[50]  As a result, the surviving spouse’s overall basis in the Florida homestead will be lower than the basis the surviving spouse would have had if the Florida homestead were owned as tenants by entireties (which is probably the most common way for married couples to hold title to Florida homestead). 
  • Federal Estate, Gift and GST Tax.  If the assets of the CPT are not treated as community property, there are a number of estate, gift and GST tax issues that would need to be addressed.  For example, what portion of the joint trust assets will be included in the gross estate of the first spouse to die?  With a joint revocable trust established in a non-community property jurisdiction, this can be a complicated question.  Another example would be whether any resulting credit shelter trust will be included in the surviving spouse’s taxable estate?  To answer these questions, a careful analysis of the trust agreement and a forensic review of the trust records may be required (assuming it is even possible to establish each spouse’s share after the assets have been commingled).

No Step-Up in Basis with Non-Pro Rata Funding.  The main purpose of the CPT is to achieve the Double Step-Up on the death of the first spouse.  If on the death of the first spouse, the assets of the CPT are divided into equal fractional shares on an asset-by-asset basis, then the assets of the CPT should be considered community property within the meaning I.R.C. §1014(b)(6).  If, on the other hand, the assets of the CPT are not divided into equal fractional shares, and instead, certain assets are allocated 100% to the surviving spouse (which is permitted as long as one-half of the aggregate value of the CPT is allocated to each share), and certain assets are allocated 100% to the deceased spouse’s share, the assets may not receive a basis adjustment on the death of the first spouse to die.[51]  Non-pro rata funding that eliminates the Double Step-Up for appreciated property is a potential trap for the trustee of the CPT responsible for dividing and distributing the assets after the death of the first spouse.

Step-Down in Basis.  If the fair market value of an asset owned by a CPT is less than its tax cost basis on the death of the first spouse, the basis of the entire asset will be adjusted down to fair market value.  In that event, having the property treated as community property may increase income taxes for the surviving spouse (who will miss out on the opportunity to utilize the loss, or maintain a higher basis for when the asset value recovers).  A CPT should not be used to hold or maintain loss property.  Remember, the married couple is not required to transfer all of their assets to the CPT once established.  In many cases, they can achieve a better tax result by being selective and monitoring the tax basis of the assets owned by the CPT. 

Valuation Discounts. In some cases, step-up in basis for appreciated property owned by the CPT will be less than anticipated.  Unlike joint property owned by a married couple outside of CPT (which is generally governed by the valuation rules under I.R.C. §2040), a deceased spouse’s one-half interest in community property will be subject to the valuation rules under I.R.C. §2033.  From an estate tax perspective, holding community property is similar to holding property as tenants-in-common with each spouse owning an equal one-half interest.[52]  For example, if the married couple contributed a single parcel of real estate with a basis of $100,000 and fair market value of $1 million (as measured on the death of the surviving spouse), the fair market value of the one-half interest in the property that is included in the deceased spouse’s taxable estate will be $500,000, less the discounts applicable to fractional interests in real estate.  In the case of assets subject to fractional interest discounts (such as real estate, or business interests), there will be a reduction in the value of the fractional interest for estate and income tax purposes.  Fractional interest discounts for assets such as real estate and business interests could be as high as 20% or more.  The resulting reduction in value will reduce the extent of the intended step-up in basis for appreciated property. 

• Avoiding Valuation Discounts Through Non-Pro Rata Funding.  Can valuation discounts be avoided through non-pro rata funding after the death of the first spouse to die?  It appears that the answer is yes.[53]  However, the benefit of eliminating valuation discounts through non-pro rata funding would be more than offset by loss of step-up in basis (if such step-up would be eliminated by the non-pro rata funding).
• Taking Advantage of Valuation Discounts.  Keep in mind that increasing basis is not always the most important planning goal.  For large taxable estates, the estate tax savings associated with valuation discounts applicable to fractional interests may outweigh the resulting reduction in basis.

Application of I.R.C. §1014(e). If the donee spouse dies within one year of funding the CPT with the donor spouse’s separate property, and the assets of the CPT are devised back to the surviving spouse (donor), one-half of the appreciated property owned by the CPT (the donee’s one-half) will not receive a step-up in basis.[54]  However, the donor’s one-half should receive a step up in basis, as it was never transferred under I.R.C. §1014(e).[55]  If death within one year of funding the CPT is a significant risk, the couple may want to consider other options if achieving a full step-up in basis on the entire asset is the intended goal.

• Options to Avoid I.R.C. §1014(e).
  • Assets Passing to Children (or Persons Other Than the Donor Spouses).  If the assets are not devised to the donor spouse, the limitations under I.R.C. §1014(e) will not apply.[56]  For example, if wife transfers low basis assets to husband, and husband dies one week later, and if husband’s will devises such assets to children, the children will have a basis in the assets equal to the fair market value of such assets as of the date of the husband’s death.  As a result, the children can sell the assets and will not have to recognize the pre-death built-in gain.[57]
  • Assets Passing to Trust with Surviving Spouse as a Beneficiary.  If the assets are not devised to the donor spouse, but instead to a trust with the donor spouse as a potential beneficiary, the limitations under I.R.C. §1014(e) may not apply, or at least may not apply to a portion of the assets.[58]  The result depends on the terms of the trust; there will likely be at least some risk that I.R.C. §1014(e) applies to some portion of the assets if the donor surviving spouse is a beneficiary of the trust.

Taxable Gift on Funding the CPT.  Assuming both spouses are U.S. citizens, a transfer from one spouse directly to another spouse will be a completed gift and will also qualify for the unlimited gift tax marital deduction.  There are no gift tax issues with direct spouse-to-spouse transfers where both spouses are U.S. citizens.  However, determining the gift tax consequences associated with the funding of a trust established by both spouses (such as a CPT) can be much more involved.  Some of the factors that must be considered in determining the gift tax consequences of a transfer by a spouse to a joint revocable trust (such as a CPT) include the following: the method for revoking the trust, withdrawal rights, the value and type of property contributed by the spouses to the trust, and whether any resulting gift qualifies for the gift tax marital deduction.[59]  If the resulting gift does not qualify for the federal gift tax marital deduction, and if the gift is more than the donor’s remaining gift tax exemption amount, the transfer will result in federal gift taxes.  While it is possible to draft a joint trust so that a transfer to the trust by a spouse will not result in a taxable gift, this requires careful drafting and a thorough understanding of the applicable tax laws, the trust agreement, and the nature of the property being transferred. 

• Unilateral Right to Revoke Held by Each Spouse.  To prevent a taxable gift, each spouse should be permitted to unilaterally revoke his or her transfers to the CPT (which is essentially the default rule set forth in Fla Stat. §736.0602(2)).  If a spouse transferring property to a CPT cannot revoke the transfer (or withdraw the assets contributed to the CPT) without the consent of the other spouse, the transferor spouse may be making a gift (which may or may not qualify for the gift tax marital deduction).[60]   
• Identical Funding.  To prevent a taxable gift at the time of funding, each spouse should fund the CPT at the same time, with identical assets (or a joint interest in the same asset).  This may require a spouse holding separate property to first retitle the property into joint ownership (for example, as tenants-in-common) before contributing the property to a CPT.  Any gift from one spouse to the other in connection with such retitling should qualify for the gift tax marital deduction (unless the spouses are not U.S. citizens).[61]  If the CPT is funded exclusively with community property the spouses acquired while living in a community property jurisdiction, each spouse should be making identical contributions for gift tax purposes.[62] 

Making Gifts Directly from a CPT.  There is nothing in the Act that prohibits spouses from making gifts to third parties directly from a CPT.  If the trustee (while both spouses are living) transfers assets from a CPT to a child of one of the spouses (for example), what is the result?  Pursuant to Fla. Stat. §736.1505(5), when property is distributed from a CPT, the property shall no longer be considered community property under the Act (but may retain its character as community property pursuant to the laws of another jurisdiction).  Assuming the property transferred by the trustee to the child is not community property under the laws of another jurisdiction, is the transfer from the CPT to the child treated as a gift of community property for federal estate, gift and GST tax purposes, or as a gift of separate property?  Who is the transferor of the property for federal transfer tax purposes? 

Funding of a Testamentary GST Trust.  On the death of the first spouse, the decedent’s one-half of the CPT can be directed to a GST tax exempt trust.  However, GST planning may be difficult to do unless (i) the total value of the CPT is greater than double the decedent spouse’s remaining GST exemption or (ii) the decedent spouse owns additional assets outside of the CPT that will utilize his or her remaining GST exemption.

Property Outside of Florida. It is unclear if real estate and tangible personal property located outside of Florida will be treated as community property under the Act or for purposes of I.R.C. §1014(b)(6).  This is especially true for property located outside of Florida in a separate property state that has not adopted the Uniform Community Property Disposition at Death Act.[63]  Instead of direct ownership of non-Florida real estate and tangible personal property by the CPT, spouses should consider transferring such property to an FLLC.  This structure will increase the likelihood that the trust’s interest in the FLLC (which owns the real estate and tangible personal property located outside of Florida) will be treated as community property under the Act.

Ownership of S Corporation Shares. Not all trusts are eligible to own shares in an S corporation.  One of the most common exceptions is trusts that qualify as grantor trusts.  A grantor trust may own shares in an S corporation, provided the grantor is treated as the owner of the entire trust for federal income tax purposes.[64]  A revocable trust established by a single grantor who retains the power to revoke the entire trust will be considered a grantor trust with respect to all of the trust assets.  Most revocable trusts fit into this category.  However, in the case of a CPT, there are two grantors which complicates the analysis.  Fortunately, there is an IRS regulation confirming that a trust with both spouses as the only grantors and the power to revoke the trust is an eligible shareholder (and qualifies as a grantor trust).[65]  In summary, before transferring S corporation shares to a CPT, you must make certain that the CPT will qualify as an eligible shareholder under I.R.C. §1361(c)(2)(A)(i).

Tax Status of LLC owned by CPT. When an individual owns 100% of a limited liability company, it is eligible to be taxed as a disregarded entity for federal income tax purposes and is not required to file a federal income tax return.  The limited liability company still serves its primary purpose (which is to protect its owner from personal liability), but it is not required to file a tax return and the owner is permitted to exchange assets with the limited liability company without any income tax consequences.  It appears that a limited liability company owned 100% by a CPT can also be treated as a disregarded entity for federal income tax purposes.  Provided such ownership interest is recognized by the IRS to be the same as ownership of a limited liability company held “solely by a husband and wife as community property under the laws of a state,” then a limited liability company owned 100% by a CPT can be treated as a disregarded entity for federal income tax purposes.[66] 

CPT for Spouses Moving to Florida from a Community Property Jurisdiction.

• Property Subject to FUDCPRDA.[67]
  • Federal Tax Law. Some lawyers feel that a CPT provides more clarity and certainty if the goal is to achieve the Double Step-Up on the death of the first spouse.  However, this view is not shared by all practitioners and there is IRS support for the Double Step-Up in the case of property brought into Florida from a community property jurisdiction governed by FUDCPRDA.[68]
• Advantages of a CPT Over Relying on FUDCPRDA.
  • Exclusion for Homestead and Tenants by the Entireties Property.  FUDCPRDA does not apply to homestead property or to property owned by a married couple as tenants by the entireties.  As a result, it is unlikely that such property will be considered “community property” for purposes of I.R.C. §1014(b)(6).
  • FUDCPRDA Only Applies to Assets Owned by the Decedent.  FUDCPRDA is limited in its scope; it does not apply to assets owned by the Decedent’s revocable trust, or other non-probate forms of ownership.
  • Requirement to File Creditor Claim.  Under current Florida law, a surviving spouse must file a timely creditor claim in the estate of first spouse to die in order to protect and enforce rights under FUDCPRDA.[69] 
  • Complicated Tracing Rules. Perhaps the biggest benefit of the CPT over relying on FUDCPRDA is that tracing will not be required.  With a CPT, all property owned by the CPT (regardless of its origin) should be considered community property for federal estate tax purposes (and therefore should receive the benefit of the Double Step-Up on the death of the first spouse to die).  Eliminating the need for complex tracing of assets and their income (otherwise required under FUDCPRDA) is an important practical advantage of a CPT, as compared to relying on FUDCPRDA.
  • Conflict of Laws.  When addressing community property issues for clients moving to Florida from another jurisdiction, the lawyer must consider the laws of the jurisdiction where the community property was established.  This adds complexity, and therefore adds time and expense.
• Risks in Converting from FUDCPRDA to CPT.
  • What Happens if the CPT Does Not Work?  As mentioned above, it is likely (but not certain) that property held in a CPT will be treated as community property for purposes of I.R.C. §1014(b)(6).  However, what happens if a married couple transfers their property (which would have otherwise been subject to FUDCPRDA) to a CPT, and then later it is determined that the CPT does not work as intended?  Can the surviving spouse take the position that the property retained its character under the laws of the prior jurisdiction and should therefore still be considered “community property” within the meaning of I.R.C. §1014(b)(6)?  Would a married couple with appreciated property have been better off (from an income tax perspective) relying on FUDCPRDA and the related tax support for the Double Step-Up?  Considering the risks involved in this area, the best practice would be to segregate in a separate CPT (and separately account and track) property acquired by the spouses in a community property jurisdiction.  With a separate trust, it will be easier to later determine the extent of existing community property that the couple moved to Florida with, if the CPT is ultimately found to not work as intended.  If the assets become so commingled that it is impossible to determine which assets originated from the community property jurisdiction, it will be much more difficult to prove to the IRS (and others) which assets should be considered “community property” within the meaning of I.R.C. §1014(b)(6).

Non-Citizen Spouse.  The gift and estate tax laws applicable to non-citizen spouses are more restrictive.  For example, a spouse cannot make unlimited gifts to a non-citizen spouse; instead, there is an annual limit which is $185,000 for 2024.  In addition, an outright bequest from a citizen spouse to a non-citizen spouse will not qualify for the federal estate tax marital deduction.  For these reasons, a CPT may not be as useful for married couples where one or both spouses are non-citizens.

Documentary Stamp Taxes.  When transferring property subject to a mortgage to a CPT, spouses will need to determine whether such transfer will trigger Florida documentary stamp taxes on the value of the mortgage.  If the property is not owned equally by the spouses as tenants-in-common (“TIC”), it should first be retitled with each spouse owning a one-half TIC interest.  Then, the spouses should transfer their TIC interest in the property to the CPT at the same time.  There should be no documentary stamp taxes in connection with the transfer to the CPT (whether or not there is a mortgage).[70]

Tax Law Changes. The Biden administration has proposed to eliminate the step-up in basis through new tax laws.  If the step-up in basis is eliminated by a change in the tax laws, and that was your client’s primary reason for establishing the CPT, your client would have wasted the time, effort, and resources associated with establishing and maintaining the CPT but will still have the CPT structure to deal with.

Ethical Issues

Background.  Married couples with long-term stable marriages typically retain the same lawyer to represent them in their estate planning, and also tend to be the best candidates for CPTs.  For this reason, it is very possible (and even likely) that the married couple will ask the same lawyer for advice in connection with a CPT. 

Advantages of Joint Representation.  There are benefits to both spouses retaining the same lawyer.  A joint representation will reduce legal fees and facilitate collaboration; in addition, a married couple that has the same lawyer for their estate planning will most likely want the same lawyer to assist with their CPT.

Potential Conflicts.  Below is a list of the issues that can come up in representing both spouses in connection with a CPT.

• Management While Both Spouses are Living. A spouse may be giving up control and management of his or her separate property.  Property contributed to the CPT during the marriage will be governed by the terms of the CPT. 
• Divorce. Spouses entering into a CPT will be fixing (and possibly changing) their rights to property in the event of divorce.  Each spouse is entitled to one-half of the CPT in the event of divorce, even if only one spouse contributed property to the CPT.[71] 
• Elective Share. Establishing a CPT will affect the surviving spouse’s elective share rights.  Pursuant to Fla. Stat. §736.1507, the decedent spouse’s one-half interest in the CPT will not be included in the elective estate.  This is consistent with treatment under FUDCPRDA.[72]
• Death.  Upon the death of the first spouse, one-half of the value of the CPT belongs to the surviving spouse, and one-half of the CPT is subject to disposition by the deceased spouse.[73]  This is the case even if one spouse contributed all of the property to the CPT.
• Homestead. In most cases, the spouses will need to waive homestead devise limitations in order to avoid an invalid homestead devise on the death of the first spouse. 
• Pre-Funding Ownership Transfers.  To avoid potential gift tax issues, such as a gift to a spouse that does not qualify for the federal gift tax marital deduction, spouses may want to retitle their property, and make gifts to each other, prior to funding the CPT.  The transfer of property ownership between spouses will change the spouses’ legal rights with respect to the property.
• Creditors.  Spouses transferring their property to a CPT may be foregoing other forms of ownership that provide protection from creditor claims.
• Irrevocable or Revocable. In establishing the trust agreement, the spouses will need to decide whether the trust is revocable or irrevocable.[74]  Even if the spouses want the CPT to be irrevocable at all times, that will not be possible.  The surviving spouse will have the ability to revoke one-half of the CPT.

Rules of Professional Conduct.  A lawyer is not prohibited from representing both spouses in connection with a CPT under the Act.  However, in order to represent both spouses in connection with a CPT, the lawyer must be able to provide “competent and diligent representation” to both spouses.[75] 

• Will a joint representation be permitted under Rule 4-1.7?  The answer to this question likely depends on whether the spouses’ interests are aligned.  For example, if the goal of one spouse is to retain full ownership and control over his or her separate property, a joint representation of the spouses in connection with a CPT will likely not be possible under Rule 4-1.7.  However, there are situations where the couples’ interests are aligned.  For example, couples that have the same estate plan, are very comfortable transferring assets to the other spouse (and have done so in past planning), have high level of trust and confidence in the other spouse to make decisions (now and after the death of the first spouse), and are not worried about a divorce.[76]  If the lawyer determines that a joint representation is appropriate, and that the lawyer can meet his or her obligations under the Florida Rules of Professional Conduct, then the lawyer will need to obtain each spouse’s informed consent in writing.[77]  Not only should these issues be addressed at the outset of the representation, but also at the time of funding, and in connection with any amendments.

Statutory Language. There is required language that must be added to the beginning of every CPT in all capital letters.[78]  Specifically, the Act states the following: “IF YOU HAVE ANY QUESTIONS ABOUT THIS TRUST AGREEMENT, YOU SHOULD SEEK COMPETENT AND INDEPENDENT LEGAL ADVICE.  ALTHOUGH NOT A REQUIREMENT, IT IS STRONGLY ADVISABLE THAT EACH SPOUSE OBTAIN THEIR OWN SEPARATE LEGAL COUNSEL PRIOR TO THE EXECUTION OF THIS TRUST.”[79] 

Risk of Unenforceability.  As noted above, a court may determine that a CPT is unenforceable for a variety of reasons.[80]   If the same lawyer represented both spouses, that fact can contribute to a court’s finding of enforceability (but may not be the sole reason for such finding).[81] 

Are the Ethical Issues Associated with CPTs Really That Unique?  There are elevated client disclosures and formalities associated with a CPT.  However, when spouses are planning their estates, they routinely face similar issues in other areas.  Decisions regarding how to title assets and whether to make gifts will have similar implications and can impact rights in the event of death and divorce.  For example, if the couple’s primary brokerage account (holding highly appreciated securities) is titled jointly, but one spouse has a terminal illness, should the joint brokerage account be transferred to the spouse with the shorter life expectancy to take advantage of the step-up in basis on the death of the first spouse?  The considerations involved are similar to a CPT, but no additional formalities would be required for transfers between spouses.  Another example would be gifting assets to an irrevocable spousal lifetime access trust (SLAT).  In this area, the change in legal rights between spouses can be just as consequential as funding a CPT.  However, it is quite common for these transfers to be made without the same level of formality and client disclosures required by the Act.

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[1] See Fla. Stat. §736.1502(1). Fla. Stat. § 736.1505(1).

[2] There is pending legislation to revise the definition of community property under Fla. Stat. § 736.1502 (1).  Currently, the statute does not expressly state that property owned by a CPT “is” community property.

[3] This example assumes the shares do not qualify as Qualified Small Business Stock (QSBS) under IRC §1202.  Gains from the sale of QSBS may be excluded.

[4] SeeI.R.C. §2040(b); I.R.C. §1014(b)(9).  For simplification, this example ignores the application of valuation discounts, and ignores any adjustments to the surviving spouse’s basis in the shares that could occur over time.

[5] The example assumes the surviving spouse sold the 100 shares owned by the surviving spouse, not the underlying assets of the business.

[6] SeeI.R.C. §1014(a), (b)(1). I.R.C. §1014(b)(6).

[7] Joint revocable trusts are more complicated than separate revocable trusts for married couples living in separate property states.  A discussion of the issues that can arise in connection with joint revocable trusts is beyond the scope of these materials.  For more information on this topic, see Joint Revocable Trusts for Married Couples Domiciled in Common-Law States, Melinda S. Merk, 32 Real Property, Probate and Trust Journal, Summer 1997, 347.  See also, Tax Planning for Family Wealth Transfers At Death: Analysis With Forms – Zaritsky Chapter 4: Planning With Jointly Owned Property and Joint Revocable Trusts, 4.07 The Joint Revocable Trust.

[8] There is pending legislation to fix this potential issue.  The new legislation would permit a married couple to amend and restate an existing joint trust to be a CPT.

[9] An existing joint trust created before the Act but amended to comply with the Act after July 1, 2021, could be “deemed” to be created after the effective date for purposes of the Act.  See M. Travis Hayes, To Share and Share Alike: An Examination of the Treatment of Community Property in Florida and the New Florida Community Property Trust Act.

[10] Fla. Stat. §736.1503 (3).

[11] Fla. Stat. §736.0103 (20).

[12] Fla. Stat. §736.1504 (2).

[13] Note that the spouses could take steps to preserve the estate plan by utilizing a Florida limited liability company.  The operating agreement can limit ownership transfers by the surviving spouse.

[14] Fla. Stat. §736.1505 (2).

[15] Fla. Stat. §736.1512 (1) (a).

[16] Fla. Stat. §736.1512 (1) (b).

[17] Fla. Stat. §736.1512 (1) (c).

[18] Fla. Stat. §736.1512 (1) (d) 1.

[19] Fla. Stat. §736.1512 (1) (d) 2.

[20] Fla. Stat. §736.1512 (1) (d) 3.

[21] Fla. Stat. §736.1504 (2).

[22] Fla. Stat. §736.1512 (3).

[23] Fla. Stat. §736.1504(1)(e).

[24] Fla. Stat. §736.1502(6) and Fla. Stat. §736.1503(2).

[25] There is one area where a CPT may provide stronger asset protection for spouses.  In cases where the spouses acquired community property while living in a community property jurisdiction that allows creditors to access the entire community, a CPT may be better option.  A CPT should limit the creditors of one spouse to one-half of the value of the CPT.

[26] Fla. Stat. §736.1506.

[27] Id.

[28] Property owned by a CPT will not be considered TBE property. 

[29] Beal Bank, SSB v. Almand & Associates, 780 So. 2d 45 (Fla. 2001); First Nat’l Bank v. Hector Supply Co., 254 So. 2d 777 (Fla. 1971)

[30] However, before deciding to maintain assets owned by the CPT in an FLLC, the spouses would need to consider that the step-up in basis may be reduced if valuation discounts apply on the death of the first spouse. Additionally, if the FLLC was taxed as partnership for federal income tax purposes, the spouses should be aware that the FLLC could make a “754 election” on the death of the first spouse, which would allow the partnership to increase the inside bases of partnership assets pursuant to IRC §743(b).

[31] Fla. Stat. §605.0503(4).

[32] Fla. Stat. §736.1504(2).

[33] The Florida Community Property Trust: Rethinking Client Trust Logistics with a New Powerful Catalyst, Alan Gassman and Christ Denicolo, Leimberg Information Services, Inc., Email Newsletter Archive Message #2893.

[34] Fla. Stat. §736.151.

[35] Section 4, Article 10 of the Fla. Cont.

[36] Section 4, Article 10 of the Fla. Cont.

[37] Fla. Stat. §736.1507.

[38] The Florida Uniform Disposition of Community Property Rights at Death Act has been around for decades; however, it does not apply to Florida homestead property.  The issues associated with “community property Florida homestead” are new to Florida practitioners.

[39] Fla. Stat. §732.7025.  For a more detailed discussion, see “Waiver Of The Spousal Devise Restriction Under New Fla. Stat. §732.7025”, by Joseph J. Tschida, ActionLine, Spring 2019.

[40] Fla. Stat. §732.4017(2).

[41] Fla. Stat. §736.1504(2).

[42] For a more detailed discussion on qualification of leasehold interests for homestead ad valorem tax treatment, see Paragraph E.10. of the Homestead outline published by Jeffrey A. Baskies in the 2023 Wills, Trusts and Estates Certification Review Course materials.  Course No. 5990.

[43] Fla. Stat. §736.1507.

[44] Fla. Stat. §732.4015.

[45] Fla. Stat. §732.401.

[46] Estate of Hamel v. Theodore Parker, P.A., 821 So. 2d 1276

[47] Aronson v. Aronson, 81 So.3d 515

[48] See Percopo, Joseph, Florida Bar Journal, October 2022, Understanding the New Florida Community Property Trust Part II

[49] For a good discussion on this planning opportunity, see “Senior Powers of Appointment,” by David A. Handler & Christina Lazo.  Trusts & Estates, September 2020.

[50] I.R.C. § 2033.

[51] I.R.C. § 1014(b)(6).  See Percopo, Joseph, Florida Bar Journal, October 2022, Understanding the New Florida Community Property Trust Part II

[52] Community Property Trusts Come to Florida, A. Stephen McDaniel, October 2021.

[53] For a discussion on this issue, see Percopo, Joseph, Florida Bar Journal, October 2022, Understanding the New Florida Community Property Trust Part I.

[54] Section 28,141 Basis considerations in transmuting separate property to community property.  Section 28,101 Community Property Planning.  Estate Planning, Practice Aids & Special Studies. 

[55] Id.  As a result, it appears that spouses can convert the separate low basis property of one spouse (donor spouse) to community property within one year of death, and still receive a step up in basis on one-half of the trust assets (the donor’s one-half).  It is important to note that even a one-half step up in basis would not be possible if the low basis assets were simply converted to joint property in a separate property state (and not community property).

[56] Even if the assets were devised to or in trust for the surviving spouse, the surviving spouse could make a qualified disclaimer under I.R.C. §2518, and would then be treated as having predeceased, which would avoid the application of I.R.C. §1014(e).

[57] There are other creative strategies as well.  See page 75-76, Planning at the Eleventh Hour.  David A. Handler & Tony Ray Meyer-Mangione.  Trusts & Estates, January 2024. 

[58] Property Acquired From A Decedent: The New Basis At Death. 2.02[2][a].  Denial of New Basis for Deathbed Transfers.  Chapter 2: Basis and Valuation of Property. Estate Planning Law and Taxation.  Westfall and Mair. 

[59] Thomson Reuters, Checklist of tax dangers in use of joint revocable living trusts, 33,207 Planning Articles, Thomson Reuters/Tax & Accounting (2021). Thomson Reuters, Funding of joint revocable living trust may give rise to immediate taxable gifts, 33,208 Planning Articles, Thomson Reuters/Tax & Accounting (2021).  Howard Zaritsky, Tax Planning for Family Wealth Transfers At Death: Analysis With Forms – Zaritsky, Chapter 4: Planning With Jointly Owned Property and Joint Revocable Trusts, 4.07[2][c], Avoiding Taxable Gift on Funding, Thomson Reuters/Tax & Accounting (2021).

[60] Thomson Reuters, Funding of joint revocable living trust may give rise to immediate taxable gifts, 33,208 Planning Articles, Thomson Reuters/Tax & Accounting (2021).  Thomson Reuters, “Terminable” interests, 48,409 Estate Planning Analysis, Thomson Reuters/Tax & Accounting (2021).  Tax Issues with Joint Trusts, Completed Gift on Funding of Joint Trust. ACTEC 2013 Fall Meeting Musings, Steve R. Akers, Bessmer Trust, November 2013.

[61] I.R.C. § 2523(i).

[62] Howard Zaritsky, Tax Planning for Family Wealth Transfers At Death: Analysis With Forms – Zaritsky, Chapter 4: Planning With Jointly Owned Property and Joint Revocable Trusts, 4.07[5][c], No Taxable Gift on Funding, Thomson Reuters/Tax & Accounting (2021).

[63] It is also possible that the state where the property is located may not recognize the CPT for purposes of applying its state income tax rules.

[64] 9:32. S Corporation Grantor Trusts, Tax Planning for Family Wealth Transfers During Life: Analysis With Forms – Zaritsky & Aghdami (WG&L)

[65] Treas. Reg. §1.1361-1(e)(2).  Joint Revocable Trusts for Married Couples Domiciled in Common-Law States, Melinda S. Merk, 32 Real Property, Probate and Trust Journal, Summer 1997, 361

[66] Rev. Proc. 2002-69.

[67] The Florida Uniform Disposition of Community Property Rights at Death Act, Fla. Stat. §732.216-732.228, also known as FUDCPRDA.

[68] 1993 WL 1609164 (IRS FSA).

[69] Johnson v. Townsend, 259 So.3d 851 (Fla. 3rd DCA 2018).

[70] Florida Department of Revenue, Technical Advice and Dispute Resolution Record ID 7001147611, dated January 30, 2024, issued by Roger L. Beasly.

[71] See Fla. Stat. §736.1508 (1).

[72] See Fla. Stat. §732.2045(1)(f).

[73] See Fla. Stat. §736.1507.

[74] Fla. Stat. § 736.1504 (1)(d).

[75] Fla. Rules of Prof’l Conduct 4-1.7. 

[76] In some ways, preparing a CPT for spouses is similar to preparing a premarital agreement.  For a good discussion on whether it is possible for the same lawyer to represent both spouses in connection with a premarital agreement under Model Rule of Professional Conduct 1.7, see “Joint Representations with Prenuptial Agreements.” June 29, 2021.  Family Law, Podcasts, T&E Administration, The American College of Trusts and Estate Counsel. Professor Elizabeth R. Carter.  https://actecfoundation.org/podcasts/joint-representation-prenuptial-postnuptial-agreement/

[77] Fla. Rules of Prof’l Conduct 4-1.7. 

[78] Fla. Stat. § 736.1503 (4).

[79] Fla. Stat. §736.1503(4).

[80] Fla. Stat. §736.1512.

[81] Fla. Stat. §736.1512 (3).