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New Community Property Trust Act in Florida

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Effective July 1, 2021, community property trusts may now be established in the state of Florida.  Florida is now the fifth state to enact community property trust legislation.  An important purpose of the Florida Community Property Trust Act (the “New Act”) is to permit the establishment of community property under Florida law.  Only married couples may establish a Florida Community Property Trust.  The intended benefit of establishing a Florida Community Property Trust is the “double step up in basis.”  On the death of the first spouse to die, all of the appreciated property owned by the Trust may receive a new basis equal to fair market value (including the surviving spouse’s one-half (1/2) interest).

For example, if a married couple establishes a Florida Community Property Trust that owns securities with a total fair market value of $1 million and a total tax cost basis of $250,000, then upon the death of the first spouse, all of the securities (even the surviving spouse’s one-half (1/2) share) may receive a step up in basis.  No income taxes should be due on the sale of the securities after the death of the first spouse to die (except as to new increases in value occurring after that spouse’s death), and the beneficiaries may receive the sales proceeds income tax free.

The potential income tax benefits associated with a Florida Community Property Trust are significant; however, they are not certain.  The IRS could challenge the federal income tax treatment of property owned by a Florida Community Property Trust.  In addition, there are other tax and legal considerations.  For example, (i) transferring assets to a Florida Community Property Trust could result in significant changes to property rights during life, in the event of divorce, and at death, (ii) there could be more exposure to creditor claims as compared to other forms of ownership, (iii) built-in capital loss property could receive a step down in basis and (iv) the step up in basis could be eliminated by a change in the tax laws (which has been proposed by the Biden administration).

The purpose of this communication is to provide you with general information about the New Act.  For details regarding the New Act and applicable tax laws, we recommend that you contact your tax advisor.

The Gould Cooksey Fennell Estate Planning and Tax Group

untitled designThe firm’s Estate Planning and Tax Group is the largest practice group of its kind in Indian River County, with eight of its nine members having a graduate law degree in either estate planning or taxation.  The lawyers within the Group provide planning and legal counsel to high-net-worth individuals, families and closely-held businesses.  In assisting clients with estate planning, our lawyers work with clients and their advisors to develop and implement strategies to minimize taxes, and to protect assets for future generations.

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