Setup in Basis for Surviving Spouse after Death of Spouse Owning Community Property.

​Florida Community Property Trust Act. On July 1, 2021, the Community Property Trust Act became effective in Florida, a separate property state, potentially providing substantial tax benefits to married couples. Under Internal Revenue Code § 1014(b)(6), when a spouse owning community property dies, the basis of both the deceased spouse’s and the surviving spouse’s 50 percent shares of the property is adjusted to the fair market value of the property at the date of the decedent spouse’s death. In contrast, under a separate property regime, only the half owned by the decedent spouse receives the stepped-up basis, meaning that if the asset is transferred during the living spouse’s lifetime, higher taxes will be owed. Some commentators have raised doubts about whether the Internal Revenue Service will allow a full step up in basis at the death of one spouse for assets held in a community property trust for individuals who do not live in a community property state.
A community property trust established under the new law would allow Florida residents and others, regardless of domicile, who establish Florida community property trusts to benefit from these tax advantages, as the property owned by the trust and the appreciation of and income from the property are deemed to be community property. Under the new statute, the community property trust must

• expressly declare that the trust is a community property trust within the meaning of the statute,
• have at least one trustee who is a qualified trustee (either spouse or both spouses if they are Florida residents or a trust company registered in Florida),
• be signed by both settlor spouses with the formalities required for the execution of a trust, and
• contain cautionary language at the beginning of the trust agreement set forth in the statute warning of the consequences of the formation of the trust and recommending consultation with separate counsel for each spouse if either of them has questions.

Another benefit of the Florida community property trust over community property trusts in most other states in which they are available is that an obligation owed solely by one settlor spouse may only be satisfied from that spouse’s one-half share of the community property trust unless otherwise provided in the trust agreement.