Community Property Trusts Can Provide Tax Savings Down the Road

If you’re nearing retirement or have already retired, you may be beginning to think about your will and estate planning. Many people wait until the back end of life to begin thinking about their final plans and last wishes. It doesn’t have to be this way. You can create an estate plan at any point, and some trusts are better for your long-term goals than others. If you are worried about your assets and tax implications, a community property trust may be an option for your situation. Community property trusts are helpful for married couples who want to protect their spouses from taxation in the event of death. The trust affords couples in non-community property states the benefits of community property for assets held in the trust.

What is Community Property Trust?

A community property trust is a specific type of revocable trust that provides some protection against capital gain taxes for real estate and other assets held in the trusts. Not every asset qualifies for inclusions, so working with an estate planning attorney in Tennessee is vital to creating this specific type of trust. For example, if a married couple has property titled in a community property trust in Tennessee and one of the two dies, the other would receive a step-up in basis adjustment to the value of the property in question. This matters because if the party sells the property soon after their spouse’s death at its market value, they will incur no capital gain taxes. This applies to most real estate property and stocks. A community property trust can save couples thousands of dollars by minimizing capital gains tax liability.

How to Know if You Need a Community Property Trust

Community property trusts are suggested for those with real estate investments, stocks, and bonds. If your retirement funds are largely in property and assets that could incur large tax bills upon the death of one party of a couple, then this could be an option. A community property trust could also benefit couples who feel that their investments would no longer make sense upon the death of one of the two. For example, if the wife has a property where she runs a business that the husband would not want to assume control over upon her death. The husband could sell the property and get a set up in basis at the death of his spouse and avoid capital gains taxes.

We don’t really see this with those who only own personal residences because there is an exemption already set at half a million. Any capital gains under the $500,000 mark would avoid capital gains. Because this doesn’t apply to second homes or investments, couples with diverse portfolios should consider the benefits of a community property trust.

Creating a Community Property Trust in Tennessee

Creating a community property trust follows the same basic process as creating any other revocable trust. Upon creating the trust, qualifying properties are transferred into the trust are titled to the trust. Spouses create the trust and serve as co-trustees, and they hold that position for their lifetime. They control all the property within the trust, and they can use it as they would any property not in the trust. Community property trust is only for married couples, and it was created to afford community property benefits to couples residing outside a community property state.

Major Takeaway When Estate Planning

Community property trusts in Tennessee are a savvy addition to your estate plan. Your estate planning attorney can help you save thousands of dollars in taxes in just a few easy steps. Call Patton Pittman if you think a community property trust would fit your financial and estate planning. Call us today at (931) 361-4477 to schedule a consultation or use our online contact form to request more information.

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