- posted: Jun. 27, 2023
At Every & Stack, we take great pride in helping clients navigate Florida’s very complex rules for estates. We go beyond protecting assets and tailor plans that can also save you money during tax season. One way to do this is through trusts; for spouses, a Community Property Trust may be the key to doing both. When property is transferred to a FLCPT, it is eligible for a federal income tax benefit.
A simple definition for a Florida Community Property Trust (FLCPT) is that it’s a joint trust that holds the assets of a married couple, and while both spouses are alive, the assets generally may be used for their benefit.
Florida is a community property state, which means that assets acquired during the marriage are considered owned one-half equally by each spouse. It does not matter if one spouse contributed more or less. By law the acquired assets fall under the default rule of one-half equally owned.
With concerns to homestead, if survived by a spouse or minor child the homestead shall not be subject to devise. Under Florida law minor children have rights to the homestead, regardless of what may be stated in a Will or Trust.
Requirements for a Florida Community Property Trust (FLCPT)
To establish a FLCPT, Florida law requires that the following criteria be met.
- Trust must expressly declare it is a FLCPT
- Have at least one “qualified trustee.”
- Be signed by both spouses with the “formalities required for the execution of a trust.”
- Contain the following statement in capital letters near the beginning of the trust agreement:
- THE CONSEQUENCES OF THIS COMMUNITY PROPERTY TRUST MAY BE VERY EXTENSIVE, INCLUDING, BUT NOT LIMITED TO, YOUR RIGHTS WITH RESPECT TO CREDITORS AND OTHER THIRD PARTIES, AND YOUR RIGHTS WITH YOUR SPOUSE DURING THE COURSE OF YOUR MARRIAGE, AT THE TIME OF A DIVORCE, AND UPON THE DEATH OF YOU OR YOUR SPOUSE. ACCORDINGLY, THIS TRUST AGREEMENT SHOULD BE SIGNED ONLY AFTER CAREFUL CONSIDERATION. 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
“Step-up” Cost Basis, Tax Advantage Explained
Setting up a FLCPT is an estate planning strategy used to avoid capital gains tax upon the death of a spouse. It allows Floridians to take advantage of Internal Revenue Code § 1014(b)(6), whereas the descendant’s property transfers to the surviving spouse at fair market value for the date of the decedent’s death. This allows the surviving spouse to avoid paying capital gains taxes.
When you acquire property, over time, it appreciates in value. Let’s say you purchased your home for $250,000. You decide after 40 years to sell your home, which is now valued at $1,000,000. This is a capital gain of $750,000, or “Step-up.” This is where a long-term capital gain tax would normally be applied. The FLCPT tax benefit applies when the surviving spouse is transferred (IS, is the correct term) the decedent’s one-half at a current fair market value, and they do not have to pay the federal capital gains tax on the home’s appreciated value.
Not all assets are defined as community property within a marriage; this is where it may benefit couples to establish a Community Property Trust to protect them going forward.
Every & Stack are Here to Protect Your Legacy
The experienced attorneys at Every & Stack can advise you on the best ways to address your legacy concerns, including transferring financial and real property assets, estate tax avoidance, guardianships for minor children, and support for philanthropic causes. We will draft an estate plan that works for you and protects your legacy.
Call today to schedule a consultation at our Daytona Beach office at 386-868-4615, or contact us online. We serve clients in Daytona Beach and throughout Florida.