Relocating to Florida is often a smart financial decision, partly because the state has no income tax and offers strong asset protection laws. However, married couples moving from community property states may face a hidden “basis trap.” This trap can lead to avoidable capital gains taxes for the surviving spouse. Understanding Florida Community Property Trust benefits is critical in this situation. Florida uses a separate property system where jointly owned assets usually receive only a partial step-up in basis. This means the asset’s tax value is adjusted at death.
To solve this problem, Florida created a powerful planning option through the Florida Community Property Trust Act in 2021. In community property states, most assets and income earned during marriage are owned equally by both spouses, no matter whose name is on the title. Florida is not a community property state, but this law lets married couples choose community property treatment through a properly structured trust. These trusts can recreate important tax advantages and may allow a full double step-up in basis, potentially reducing or eliminating capital gains tax on appreciated joint assets after the first spouse’s death.
The Tax Problem a Community Property Trust Is Designed to Solve
Capital gains tax applies only to profit when you sell an asset. In simple terms, profit equals the sale price minus your basis. Basis is usually what you originally paid, adjusted for certain factors over time. The lower your basis, the higher your taxable gain.
Real estate makes this issue more complex. Depreciation deductions can reduce your basis year after year. As a result, if you sell the property later, you may owe capital gains tax and also have to pay tax on the depreciation you claimed earlier. This “recapture” of depreciation can be taxed at rates up to 25 percent under federal law. Additionally, higher-income households may owe the 3.8 percent Net Investment Income surtax. Because of this, the entire planning conversation often comes down to one key number: basis. This is where some of the most important Florida Community Property Trust benefits become clear for high-value estates.
The Step-Up in Basis Rule and Why It Matters
When a person passes away owning appreciated property, the beneficiary usually receives a new basis equal to the asset’s fair market value at the date of death. This adjustment, commonly called a step-up in basis, is established under Internal Revenue Code Section 1014.
In most non-community property states, married couples can own property together, but it doesn’t automatically belong to both equally. They usually use joint ownership forms like tenants by the entirety or joint tenancy with right of survivorship. When the first spouse dies, only that spouse’s share usually receives a step-up, so the surviving spouse could still face capital gains tax on the increase in value of their half that hasn’t been taxed yet. Community property states are different. Under Internal Revenue Code Section 1014(b)(6), both halves of community property can receive a step-up at the first spouse’s death. This is widely known as the double step-up in basis.
The Florida Community Property Trust statute was created to replicate this favorable tax outcome for assets placed in a properly structured trust. By electing this arrangement, residents can access Florida Community Property Trust benefits that were previously unavailable in the state. Specifically, the surviving spouse may reset the basis on 100 percent of the trust assets, which can lead to significant tax savings.
What a Florida Community Property Trust Does
A Florida Community Property Trust lets married couples hold specific assets as community property under Florida law. By making this election, assets that might otherwise be treated as separate or jointly owned property can receive community property treatment within the trust structure. However, this is not a self-executing process. To be valid under the Florida Community Property Trust Act, the trust must meet certain legal requirements. For example, it must include at least one qualified trustee who is a Florida resident or a bank authorized to do business in the state.
This classification matters because it may allow a full 100 percent step-up in basis when the first spouse dies. This closely mirrors the favorable tax treatment of traditional community property. As a result, one of the most practical Florida Community Property Trust benefits is the ability to significantly reduce or eliminate future capital gains exposure for the surviving spouse. The strategy is designed primarily to improve federal income-tax outcomes rather than to reduce estate taxes. By specifically designating assets such as a family business or brokerage account, couples can preserve the full value of their shared legacy and reduce avoidable taxation.
Why Real Estate Owners Face Even Higher Tax Exposure
Investment real estate often carries the highest tax exposure because a sale may trigger capital gains, depreciation recapture, and the Net Investment Income surtax. Securing a full basis step-up through Florida Community Property Trust benefits can significantly reduce this combined liability and improve long-term planning flexibility.
Who Should Consider Florida Community Property Trust Benefits?
A Florida Community Property Trust is not appropriate for every couple. However, it is often most effective in the following circumstances:
- Spouses are in a stable, long-term marriage and comfortable converting assets to community property treatment
- Both spouses intend to leave assets to the same or closely aligned beneficiaries
- The couple owns highly appreciated assets that may be sold after the first spouse’s death, such as long-held brokerage accounts, concentrated stock positions, or investment real estate
- The couple currently resides in Florida or is actively establishing Florida residency
When these factors are present, the potential Florida Community Property Trust benefits can provide meaningful tax efficiency and long-term estate planning clarity.
Assets That Commonly Benefit From a Florida Community Property Trust
A Florida Community Property Trust is most effective for assets with significant unrealized appreciation where future liquidity planning is likely. Common examples include:
- Taxable brokerage accounts or individual stocks with substantial built-in gain
- Closely held business interests, when transfer restrictions and valuation planning permit trust ownership
- Investment real estate, particularly property with long depreciation histories
- Certain partnership or limited liability company interests, subject to governing agreement and tax analysis
Some assets require additional caution or may provide limited Florida Community Property Trust benefits, including:
- Individual Retirement Accounts (IRAs) and other qualified retirement accounts, which follow separate tax rules and generally do not receive a traditional basis step-up
- Primary residences that may already qualify for the home sale exclusion, depending on appreciation and future plans
- Assets with minimal appreciation, where added complexity may outweigh potential tax savings
How to Implement a Florida Community Property Trust
Step 1: Clarify your goal
Confirm that your primary objective is reducing future capital gains and improving flexibility for the surviving spouse. If probate avoidance is the only concern, a standard revocable trust may be sufficient. However, if you hold highly appreciated stock or real estate, you likely need a structure that prioritizes Florida Community Property Trust benefits.
Step 2: Identify and measure appreciated assets
List potential trust assets and determine current value, tax basis, unrealized gain, and whether the survivor may sell. The greater the appreciation, the more meaningful the Florida Community Property Trust benefits become.
Step 3: Review family, creditor, and beneficiary considerations
Because a Community Property Trust creates community property treatment, spouses should review possible creditor risks. Specifically, converting assets to community property may bypass Florida’s “Tenancy by the Entirety” protections. Couples in blended families should also consider if both spouses intend to leave assets to the same beneficiaries, as community property laws grant each spouse control over their respective half of the trust.
Step 4: Create and properly fund the trust
An attorney must draft the trust to meet Florida’s statutory requirements. This includes inserting a mandatory warning in all-capital letters at the start of the document and appointing a “qualified trustee,” which is a Florida resident or a local trust company. Following the draft, you must formally retitle brokerage accounts, real estate, or business interests into the name of the trust.
Step 5: Coordinate with the broader estate plan and future administration
The Community Property Trust should align with wills, powers of attorney, beneficiary designations, and homestead planning. Clear records and asset values at the date of death are necessary for the survivor to claim the basis adjustment from the IRS. Working with experienced professionals during the trust administration process helps ensure compliance, accurate reporting, and preservation of available tax benefits.
Key Risks and Limitations to Understand
A Florida Community Property Trust is powerful but involves real uncertainty and tradeoffs.
IRS guidance is limited
Florida’s Community Property Trust law is relatively new, and the IRS has not issued definitive guidance addressing every scenario. While the strategy is grounded in existing community property tax principles, it should be treated as advanced planning and implemented with experienced legal counsel.
Creditor exposure may increase
Community property treatment can make certain assets more reachable by a spouse’s creditor than traditional Florida ownership structures, such as tenants by the entirety. Couples focused on asset protection should evaluate this risk carefully.
Divorce and control issues matter
A Community Property Trust changes how property is legally classified between spouses. If the marriage ends, that conversion can affect how assets are divided and controlled.
Blended family planning can be complicated
When spouses want different beneficiaries or strict separation of assets, a Community Property Trust may create conflict. These trusts tend to work best when spouses share aligned estate planning goals.
Relocating to Florida: Timing Considerations
Couples moving to Florida should check whether their previous community property has been kept separate, mixed with other assets, or needs to be moved into a Florida Community Property Trust after they become residents. Doing this as part of overall estate planning helps make sure they get the potential Florida Community Property Trust benefits.
Frequently Asked Questions (FAQs)
What are the main Florida Community Property Trust benefits?
The primary advantage is the potential for a 100 percent step-up in basis at the first spouse’s death. This adjustment can significantly reduce or eliminate future capital gains tax for the surviving spouse when trust assets are later sold.
Which assets are usually best to place into a Community Property Trust?
Common candidates include highly appreciated taxable brokerage accounts, long-held individual stocks, and investment real estate with meaningful unrealized gain. Retirement accounts generally follow separate tax rules and are typically not central to Community Property Trust planning.
What are the biggest downsides?
Key concerns include limited IRS guidance on elective community property regimes, possible increased creditor exposure compared to traditional Florida ownership structures, and the fact that the trust changes property rights, which may affect divorce planning or blended family arrangements.
Is a Florida Community Property Trust right for every married couple?
No. This strategy is most effective for stable marriages with aligned estate planning goals and significant appreciated assets. Couples with blended families, creditor concerns, or minimal unrealized gain should evaluate alternatives with qualified legal and tax advisors.
Contact a Florida Estate Planning Lawyer Today
A Florida Community Property Trust can reduce future capital gains taxes, preserve appreciated assets, and strengthen long-term estate planning. However, it must be carefully drafted, funded, and administered to avoid costly mistakes.
Working with an experienced estate planning attorney helps ensure your trust complies with Florida law, aligns with federal tax principles, and integrates smoothly with the rest of your estate plan. With decades of combined experience, our team has been recognized by Best Lawyers® and the Tampa Bay Times’ “Best of the Best for Estate Law.” We guide families through advanced planning strategies with clarity, precision, and a focus on protecting generational wealth.
Relocating to Florida can provide financial and tax advantages, particularly for couples aiming to protect appreciated assets. Schedule a free consultation today to find out if a Florida Community Property Trust is right for you and begin safeguarding your assets, your spouse’s future, and your shared legacy.
