Integrating a Community Property Trust into Your Estate Planning

How Community Property Trusts integrate with your estate plan (and save you on taxes, too!)

A well-crafted estate plan is comprised of many individual parts, and careful, trust-based estate planning is the best way to preserve your family’s legacy for you and your loved ones. One way couples can get the most mileage out of their estate plans is through community property trusts. This is a special type of trust that combines a couple’s jointly acquired assets as community property and can save a significant amount of taxes.

Why community property trusts are a great idea

The essential benefit of a Community Property Trust (CPT) is that the basis of community-owned property is stepped up when one member of the couple dies. Not only that — it also steps up the basis for the surviving spouse’s half of the property (rather than only half, which is what happens with “plain” jointly owned property). This means that the capital gains tax will take a much smaller percentage of the surviving spouse’s wealth when the property is sold.

The limitations of Community Property Trusts

There are two states in which CPTs can be formed by non-residents: Alaska and Tennessee. These trusts have to be funded and have ongoing requirements to achieve their tax benefits. So, they are not a panacea and don’t necessarily fit every married couple’s situation.

How Community Property Trusts fit in with other estate planning strategies

If your estate plan is robust and ready for all of life’s potential successes and challenges, it likely includes any number of revocable and irrevocable trusts, powers of attorney, long-term care directives, and miscellaneous probate-avoidance precautions.

Community property trusts can only work for the property you fund into them, meaning that you can and should have other strategies in place such as a revocable trust, will, power of attorney, etc. The same property cannot be managed under multiple trusts at the same time, so it is important for us to figure out which of your assets you’d like to set aside for other types of trusts before settling on the details of your CPT.

Community property trusts are not for everyone. However, if we can determine that setting one up is a realistic fit for you and your family, you can expect to save a large sum by avoiding taxes you would otherwise accrue. Give McDonald Law Firm a call today at (443) 741-1088 to see whether this solution might be an effective addition to your other estate planning strategies.

DISCLAIMER: THE INFORMATION POSTED ON THIS BLOG IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INTENDED TO CONVEY LEGAL ADVICE.