Brand New Community Property Trust Law In Florida
In July 2021, Florida’s new Community Property Trust Act (CPTA) became law, along with another act signed on the same day, the Florida Uniform Directed Trust Act (FUDTA). The CPTA is seen as a potential boon to married couples, particularly those with the same creditors, that may operate to save significant amounts in taxes. While Florida is not a community property state, the way a Community Property Trust can apparently be laid out in such a way that if done right, your entire estate may receive a “step-up” in value, which you can then pass on to your beneficiaries.
Making Community Property An Option
The community property system is a method for distributing assets when two people divorce. The handful of states that use this system will evaluate all the assets and debts acquired during the marriage, and divide those assets and liabilities 50-50 (with very rare exceptions). Florida uses a system known as equitable distribution in divorce cases, where assets and debts are apportioned according to equity (fairness). However, the new CPTA creates an opportunity for a married couple to use community property principles if they believe that it is the best choice for them.
The major draw of the new law is its potential savings for married couples. Normally, in equitable distribution states, when one spouse passes away, their assets receive what is referred to as a “step-up” in value. With a Community Property Trust (CPT), it is possible for all the community assets (that is, anything acquired during the period of the marriage) to get that step up, which can in turn save money in capital gains taxes the long run and give the surviving spouse much more flexibility in terms of managing their financial affairs.
Comes With Caveats
While a CPT can be a good option for a married couple who have essentially the same beneficiaries – their kids, for example – it can be potentially problematic for others. One of the most important reasons why is creditor issues; if one spouse has problems with their finances, creditors can reach one-half of the estates in a CPT, even though technically the other spouse has a partial interest in those assets as well. Another issue can happen if the spouses disagree on beneficiaries – the law requires that one-half of the community assets pass a certain way, while the other half pass generally according to the surviving spouse’s wishes.
Be advised that while a CPT can help you to avoid capital gains taxes, it cannot generally do anything about one’s federal income tax obligation. Case law establishes that any scheme that allows people to opt into a community property regime (as opposed to living in a state where one is imposed automatically) is not valid for federal income tax purposes. In other words, Florida’s new law, which one must choose to use, cannot make any changes to one’s federal income tax burden, even if it can affect capital gains taxes with impunity.
Contact A Naples Estate Planning Attorney
If you have questions, concerns or just want to set up a complimentary consultation to discuss your personal legal issues in a confidential setting, contact James R. Nici, the Managing Partner of Nici Law Firm, a Naples estate planning attorney with almost 30 years of legal experience. This may be the first step toward ensuring all is how you want it to be going forward. Contact our offices today via our website, or on the telephone at 239-449-6150, to schedule your complimentary consultation.