Florida recently enacted a new law that is making some exciting changes in estate planning.
This new law, the Community Property Trust Act (CPTA) went into effect on July 1, 2021.
But what’s it all about?
In today’s post we will provide a brief overview of the new law and how it may affect your estate planning.
But First, The Old Law: Florida Law and Capital Gains Taxes
Before we delve into the new law, it is important to understand two things:
- that Florida is not a community property state. And
- what that means when it comes to estate planning.
In community property states (for example, California, Nevada, New Mexico, Arizona, Idaho, Louisiana, Texas, New Mexico, Washington and Wisconsin) all property acquired during the marriage that is not separate property, is considered “community property” or “marital” property. For estate tax purposes, Internal Revenue Code § 1014(b)(6), allows the basis of all community property to be adjusted to the fair market value of the property at the date of the first spouse’s death. This means that at the time of death of the first spouse, both the deceased spouse’s share and the surviving spouse’s half of the community property is adjusted to the fair market value of the property at the date of the decedent spouse’s death.
This step-up in basis allows the surviving spouse to avoid capital gains tax at the time of the first spouse’s death.
In contrast, because Florida is not a community property state, Florida’s law— until the passing of the CPTA—allowed only the deceased spouse’s half of all marital property to receive a step-up in basis. A surviving spouse’s share did not get a step-up in basis. Jointly-owned assets get the step-up in basis for only one-half the value.
Enactment of the CPTA, however, has expanded the estate planning possibilities.
Next, The New Law: Florida’s New Community Property Trust Act
The enactment of the CPTA allows Floridians to participate in the tax advantage historically enjoyed in community property states.
Florida’s new Community Property Trust Act lets Florida residents create and fund a community property trust (CPT). This allows them to take advantage of Internal Revenue Code § 1014(b)(6).
The CPT must meet specific legal requirements (which we will discuss in a separate post). However, once properly established, the assets in the CPT are revalued as of the date of the first spouse’s death; helping couples avoid capital gains tax.
It may not work for everyone of course, but if a CPT makes sense for your estate planning, it can be a great tool to use. Talk to your estate and probate lawyer to find out more about Florida’s new law.
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Don’t leave planning for your future and that of your loved ones to chance. All it takes is one phone call to SJF Law Group to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. When you work with the estate planning attorneys at SJF Law Group, you get more than just an estate plan: you get peace of mind. Call us at 954-580-3690 or email us at: [email protected] today.