By Robin L. Cook, CWS®, CTFA®
The Florida Community Property Trust act (FLCPT) became available to married Florida couples July 1, 2021. This trust provides many benefits, the most significant being the potential tax treatment of assets held in this type of trust after the first spouse passes away.
Florida is a common law property state, and asset ownership is dictated by how the asset is titled. If you own the asset, you may convey it.
Conversely, there are nine states that are community property states and assets in those states that are acquired during a marriage are considered to be owned 50/50 regardless of how assets are titled or acquired. You can only convey the ½ that you own.
This new act FLCPT permits the creation of a joint Community Property Trust to permit spouses to place assets in the trust that will be treated as if the asset is Community Property.
The primary purpose of a Community Property Trust is to take advantage of Federal Income Tax Planning.
• Under IRS regulations, property receives a “step up in basis” on the death of the owner. A “step up in basis” is a tax rule that adjusts the cost basis (price paid) of an inherited asset to its fair market value at the time of the decedent’s death.
• Jointly held property in a common law state only permits a “step up in basis” of ½ the property.
• Property held in a community property state however/ permits the survivor a 100% “step up in basis” for all of the property.
Let’s look at an example:
| COMMON LAW | COMMUNITY PROPERTY |
| 200 Shares of ABC stock at $100 a share cost basis and a Fair Market Value of $500 owned Jointly with rights of survivorship | 200 Shares of ABC stock at $100 with a share cost basis and Fair Market Value of $500 owned as Community Property |
| At Husband’s death 1/2 valued receives a step up in basis to $50,000 | At Husband’s death
All shares valued at $500 |
| Wife owns 1/2 shares with a cost basis of $10,000 | Wife sells 200 shares $500/share netting $100,000 |
| Wife sells 200 shares $500/share netting $100,000 | Cost basis is $100,000 |
| Capital gain is $4,000 ($100,000-$50,000 – $10,000 = $40,000) | No capital gains. |
| Capital gains tax is $8,000 ($40,000 X 20%) | Tax savings $8,000 |
Are there downsides?
• You may lose creditor protection of Tenants by the Entireties.
• This may affect marital division in the event of a divorce.
• The IRS could challenge. No current case law or IRS regulations. The act is Florida law (not IRS Code or Regulation). Other states have taken similar actions, but this is not precedent.
As with all important estate and tax planning strategy decisions, you should consult with your wealth management team, including your wealth advisor, estate planning attorney and your accountant before engaging in any transactions. It’s also a good time to check with your insurance agent to ensure that your umbrella liability policy is adequate.
Remember that these trusts are for specific assets and should not be a replacement for your will or trust.
If a Community Property Trust looks favorable, your attorney will draft the trust and assist with the transfer of assets into the trust name.
Robin L. Cook, CWS®, CTFA®
Robin joined Suncoast Equity Management in 2022. She has a long-standing career in the financial services arena with over 30 years of well-rounded experience. Robin specializes in providing comprehensive wealth management services and developing deeply personal client relationships helping high net worth individuals, families, foundations and nonprofits preserve and grow their wealth. Prior to joining SEM Robin served for 8 years as Executive Vice President of Wealth Services at The Sanibel Captiva Trust Company, as a Certified Wealth Strategist at Regions Bank and as a Private Banker at Fifth Third Bank. In these roles Robin established herself as a top performer both in new business development, and client retention which resulted in being recognized multiple years as a “Chairman’s Club” award recipient.
Robin is a resident of Sanibel Island and enjoys being involved in the community. She is a member of Sanibel Captiva Business Women’s Association, Sanibel Captiva Rotary and volunteers for SanCap Cares Golisano Children’s Hospital Fundraising Committee and the Sanibel Captiva Conservation Foundation. Robin has served on boards for the Captiva Historical Society, Gulf Care Inc. retirement community, and The Cape Coral Community Foundation. Robin was recognized as the American Business Women’s Association “Sanibel Captiva American Business Woman of the Year” in 2013 and is a graduate of the “Leadership Cape Coral” program.
Robin has continuously sought out educational opportunities to better serve her clients. Robin completed the ABA’s Graduate School of Banking program the University of Florida in 1999, followed by earning the CERTIFIED WEALTH STRATEGIST™ (CWS®) certification in 2013, and the CERTIFIED TRUST FIDUCIARY ADVISOR™ (CTFA®) certification in 2022. Robin previously held a Florida Insurance license, the General Securities Representative (Series 7) license, and the Uniform Securities Agent (Series 63) license.
Investment advisory services are offered through Suncoast Equity Management, LLC, a Securities and Exchange Commission Registered Investment Advisor. This material has been prepared for informational purposes only and is not intended to be relied on for tax, legal or accounting advice.
