Florida Community Property Trusts: A Strategic Estate Planning Tool

Married couples in Florida may be overlooking a significant tax-saving opportunity that could protect their wealth and streamline the transfer of assets. A Florida Community Property Trust (FCPT) allows couples to achieve the same tax advantages as those in community property states—without relocating.

For those holding highly appreciated assets—such as stocks, family businesses, investment properties, or primary residences—an FCPT can substantially reduce or eliminate capital gains taxes upon the death of the first spouse, ensuring a more efficient and cost-effective transfer of wealth.

Understanding the Step-Up in Basis: A Key Tax Benefit

Upon death, certain assets receive a step-up in basis, meaning the taxable value of the asset is adjusted to its market value at the time of death. However, how much of a step-up is granted depends on the ownership structure:

• Without an FCPT: A jointly owned $2 million stock portfolio with a near-zero cost basis would receive only a half step-up in basis. As a result, the surviving spouse could face capital gains tax on $1 million, potentially amounting to at least $168,000 in taxes.
• With an FCPT: The same portfolio would receive a full step-up in basis, eliminating the capital gains tax entirely upon the first spouse’s passing.

This benefit extends beyond securities. Family businesses, real estate holdings, and other appreciated assets also qualify, creating opportunities for more effective wealth preservation.

Practical Applications of an FCPT

Implementing an FCPT can provide substantial financial benefits in a variety of scenarios:

• Sale of a Family Business – A surviving spouse who no longer wishes to manage a company can sell it with minimal tax liability, maximizing retained wealth.
• Downsizing a Primary Residence – A home that has significantly appreciated in value can be sold tax-free after the first spouse's passing.
• Disposition of a Vacation Home – Without an FCPT, the sale of a highly appreciated secondary property may result in tens of thousands of dollars in taxes. An FCPT eliminates this burden.

Legal and Financial Considerations

While an FCPT provides substantial tax advantages, there are several factors to consider:

• Suitability for Married Couples – An FCPT requires joint ownership and may not be appropriate for second marriages where spouses maintain separate assets.
• Regulatory Stability – Since 1998, the IRS has not challenged the tax benefits of community property trusts. Even if future legislative changes occur, the trust remains a highly effective estate planning tool.
• Creditor Protections – Joint assets in Florida often receive strong legal protections from creditors. While an FCPT may slightly alter these protections, couples can mitigate risks through umbrella insurance policies.

Is an FCPT Right for Your Estate Plan?

For married couples with substantial appreciated assets, a Florida Community Property Trust offers an advanced, legally sound strategy to preserve wealth and minimize tax burdens. Determining whether this structure aligns with your estate planning goals requires careful consideration and professional guidance.

To explore how an FCPT can enhance your estate plan, contact Harrison Estate Law today. Our experienced team can provide the expertise and strategic planning necessary to protect your financial future.