Most people don’t think of Florida as a community property state because it isn’t. But a Florida law that took effect in 2021 gives married couples a way to access one of the biggest tax advantages that community property states have long enjoyed: a full step-up in basis on jointly owned assets at the death of the first spouse.
This law is called the Community Property Trust Act (CPTA), and for the right couple, it can mean significant capital gains tax savings for a surviving spouse. Here’s how it works and whether it might make sense for your Florida estate plan.
Why This Matters: Florida Is Not a Community Property State
Roughly a dozen states, including California, Texas, Arizona, Nevada, and Washington, are community property states. In those states, property acquired during a marriage is generally treated as jointly owned “community property,” regardless of which spouse’s name is on the title.
This distinction has a major tax consequence. Under Internal Revenue Code §1014(b)(6), when one spouse in a community property state dies, the entire value of the couple’s community property, both the deceased spouse’s half and the surviving spouse’s half, receives a step-up in basis to fair market value as of the date of death. We covered how step-up in basis works in more detail in a separate article, but the short version is that it can eliminate capital gains tax exposure on appreciated assets entirely.
Florida, as a common-law (non-community property) state, historically allowed a step-up in basis only on the deceased spouse’s half of jointly owned property. The surviving spouse’s half retained its original cost basis, meaning a sale after the first spouse’s death could trigger a substantial capital gains tax bill on that portion.
What the Community Property Trust Act Changed
The CPTA, codified in Florida Statutes §736.1501–736.1512, allows Florida married couples to voluntarily convert eligible assets into “community property” for tax purposes by transferring them into a properly structured community property trust (CPT).
Once assets are held in a valid CPT, they are treated the same way community property is treated in states like California or Texas: at the death of the first spouse, the entire value of the trust assets, not just the deceased spouse’s half, is intended to qualify for a step-up in basis to fair market value under federal tax law. For a surviving spouse who later sells an appreciated asset, this can mean substantial capital gains tax savings, potentially tens or even hundreds of thousands of dollars depending on the asset’s appreciation.
Requirements for a Valid Community Property Trust in Florida
To qualify for this tax treatment, a Community Property Trust must meet specific requirements under Florida law:
- Florida’s Community Property Trust Act allows spouses to classify assets as community property regardless of whether either spouse is a Florida resident; residency is not the requirement. The Florida connection instead comes through the trust’s qualified trustee (see below)
- The trust must be in writing and expressly declare that the assets transferred into it are community property
- At least one trustee must be a “qualified trustee”, generally a Florida resident, a Florida trust company, or a Florida bank or financial institution authorized to act as trustee
- Both spouses must consent to the trust and its terms
- The trust must comply with all other formalities required under the Florida Trust Code
Because the qualified trustee requirement is fairly specific, establishing a CPT typically requires working with an attorney who can identify an appropriate trustee and ensure the trust is drafted to comply with all statutory requirements. An improperly structured CPT will not receive the favorable tax treatment the law is designed to provide.
Is a Community Property Trust Right for Your Florida Estate Plan?
A CPT is not the right fit for every Florida couple. It tends to make the most sense for couples who:
- Hold significantly appreciated assets jointly, such as real estate, investment accounts, or a family business
- Are both Florida residents and intend to remain so
- Want to maximize the tax efficiency of their estate plan for the benefit of the surviving spouse
- Are comfortable working with a qualified trustee as part of their trust structure
For couples without significant appreciated jointly held assets, the benefit of a CPT may be limited, and a standard revocable living trust may be entirely sufficient. Learn more about how an inter vivos (living) trust works in Florida and how it compares.
How a Community Property Trust Fits Into Your Broader Estate Plan
A CPT is typically not a standalone solution – it works best as one component of a complete Florida estate plan. Most couples who establish a CPT also have a revocable living trust, a pour-over will, and incapacity planning documents in place. Learn more about what a complete Florida estate plan looks like.
Wondering If a Community Property Trust Makes Sense for You?
Our team at SJF Law Group works hard to ensure your wishes are honored and your loved ones are cared for. Our estate planning attorneys expertly guide individuals and families through the complex world of trusts and tax-efficient estate planning, including evaluating whether a Community Property Trust is the right fit for your situation.
We serve individuals and families throughout Plantation, Fort Lauderdale, Boca Raton, West Palm Beach, and Miami, FL, with both in-person and virtual appointments available. Call us at (954) 580-3690 or fill out our contact form to schedule your free consultation.
