Florida is known for its sunny beaches, its unique wildlife and Publix, the state’s popular grocery chain. It’s also often seen as a domestic tax haven, due to its lack of a state income tax. But when did Florida become known as a community property state for trusts? The short answer is that while Florida isn’t a traditional community property state, it has adopted Florida Community Property Trust laws that offer certain marital property estate planning advantages through legislation enacted in 2021.
What’s so special about community property trust laws? Let’s look at them in the lens of one of Publix’s “buy one, get one free” promotions.
Florida is a separate property state and a common law state. Under common law property rules, when one spouse dies in a non-community property state, only half of the jointly owned assets receive a step-up in basis while the surviving spouse keeps their original tax basis on their half. But when a married couple creates a Florida Community Property Trust, assets placed in the trust are treated as community property assets for tax purposes. This means that when the first spouse dies, both halves may receive a full step-up in basis.
Essentially, in Publix terminology, when the first spouse dies, not only does the surviving spouse receive one step-up in basis but both halves of the appreciated property in the trust receive stepped-up basis. For many married couples, that’s the estate planning equivalent of a “buy one, get one free” tax benefit on built‑in gains.
In this article, we’ll discuss Florida’s Community Property Trust laws more in depth and explore how they can fit into a broader estate planning and asset protection strategy for Florida residents.
Florida’s New Estate Planning Opportunity
Florida is traditionally a separate property state, where ownership depends on title rather than default community property rights. Under Florida law, property is generally classified based on how it’s titled and on whether it’s marital property or separate property, which is important for both estate planning and property division in divorce.
Florida’s Community Property Trust Act, now part of the Florida Statues,went into effect on July 1, 2021. This Florida statute created a way for a Florida couple to voluntarily elect community property treatment for certain trust assets. Through a properly drafted trust agreement, spouses can elect community property status for designated property even though Florida isn’t a community property jurisdiction.
This is a significant opportunity for married clients residing in Florida who hold appreciated assets and want to improve future tax outcomes for a surviving spouse. It can also be a meaningful planning tool for Florida residents who have moved from a community property state and want to preserve some community property treatment for tax purposes.
For those getting started with estate planning, understanding how this new Florida law fits into your broader strategy can help you make more informed decisions about protecting your family’s wealth under both state law and federal tax law.
What Is a Florida Community Property Trust?
A Florida Community Property Trust is a trust agreement between spouses that elects community property treatment for selected assets. Under the act, a community property trust is an express trust created by a settlor spouse (or both settlor spouses) that meets specific statutory requirements, including Florida trustee requirements and notice language.
Florida became one of the few non-community property states allowing this structure. Once established, the trust can hold real estate, investment accounts and other community property assets. Assets transferred into the trust may qualify for community property tax treatment under federal tax law, meaning the trust assets may be eligible for the special basis rules that typically apply only in a community property state.
It’s important to note that because the legislation is still relevantly recent, there’s no guarantee of a full step-up at the first spouse’s death, as the IRS hasn’t provided a definitive ruling specific to Florida Community Property Trusts. However, it appears likely that a full step-up is available, because Florida intended this community property treatment through the enactment of the Community Property Trust Act and structured the law to mirror community property rights in a traditional community property jurisdiction.
Many Florida residents already use a revocable trust as part of their estate planning to avoid probate and organize trust assets. Comparing options like a trust and will can help you understand where a Florida Community Property Trust fits within your overall plan and whether it should be used alongside or instead of a standard revocable trust.
Why a Step-Up in Basis Matters
The step-up in basis concept is central to estate planning and tax law, because it directly affects how much capital gains tax is owed when an asset is sold. Basis generally refers to the original purchase price of the asset, adjusted for certain tax events. When an asset is sold, tax is calculated on the difference between the sale price and basis. At death, many assets receive a step-up in basis, meaning their basis is reset to fair market value on the date of death.
In a typical separate property state or common law property arrangement, when one spouse dies, only that spouse’s half of jointly owned property gets a step-up in basis. The surviving spouse’s half typically keeps its original basis. By contrast, in a community property state, qualifying community property can receive a 100% basis adjustment at the first spouse’s death, which is a major tax benefit for the surviving spouse.
Florida’s Community Property Trust Act is designed to replicate that community property treatment. Under Florida’s law, if assets inside a Florida Community Property Trust qualify as community property for federal tax purposes, both halves may receive a full step-up in basis at the first spouse’s death. This can dramatically reduce the capital gains tax owed on appreciated assets, such as real estate, investment portfolios and concentrated stock positions.
To better understand the step-up in basis concept, consider the following hypothetical scenario.
Hypothetical Scenario
Years ago, a married couple purchased homestead real estate and a portfolio of marketable securities (including early Apple stock prior to its 4-for-1 split) for a combined $750,000. Over time, the combined fair market value of these assets grew to $7,000,000.
Here’s how the tax exposure compares at the first spouse’s death:
| Tax Component | Without a Community Property Trust (Traditional Separate Property) | With a Florida Community Property Trust (Community Property Election) |
|---|---|---|
| Original Cost Basis | $750,000 | $750,000 |
| Current Fair Market Value | $7,000,000 | $7,000,000 |
| New Basis at First Death | $3,500,000 (Only the deceased spouse’s 50% share steps up) | $7,000,000 (Both halves receive a full 100% step-up) |
| Potential Taxable Gain (If sold by the surviving spouse) | $3,500,000 | $0 |
| Estimated Capital Gains Tax | Subject to significant tax exposure | $0 |
Key takeaways from this example
- The traditional outcome – Without the trust, the aggregate basis only steps up from $750,000 to $3,500,000. If the surviving spouse sells the assets, approximately $3,500,000 of built-in gain could be subject to capital gains tax.
- The Florida Community Property Trust outcome – With the trust, the basis completely resets to the full $7,000,000 market value. A subsequent sale by the surviving spouse results in $0 of capital gains tax on that built-in gain.
This is a significant potential tax benefit for married couples — especially those with large, low‑basis positions in real estate or other appreciated property.
Creative Planning Insight
“Florida’s Community Property Trust Act created a unique planning window, giving married couples in a common law state access to community property tax treatment without relocating. But like any advanced strategy, the value comes from thoughtful implementation, not just the concept itself.” — Michelle DeVos, JD, LLM Attorney
How Florida’s Community Property Trust Interacts With Florida Homestead and Marital Property Rules
For many families, homestead property is one of the most valuable assets in the estate. Florida homestead rules under the Florida Constitution and Florida Statutes provide powerful protections and restrictions on how homestead property can be devised, transferred and subjected to creditor claim.
When you’re considering transferring homestead property or other real estate into a Florida Community Property Trust, it’s essential to coordinate with Florida homestead protections, spousal consent rules and marital property rights. Florida is an equitable distribution state, which means marital assets are divided fairly, though not always equally, in a divorce. Separate property typically remains with the original owner, while marital assets are generally subject to property division.
Electing community property status through a Florida Community Property Trust can change how homestead property and other marital assets are classified for tax purposes, and in some circumstances it may affect property division outcomes if the marriage later ends. That’s why Florida couples should work closely with an estate planning attorney familiar with Florida Bar guidance, the Florida Constitution’s homestead provisions and the interplay between community property status and equitable distribution.
Is a Florida Community Property Trust Right for You?
A Florida Community Property Trust may be ideal for married couples with joint property and appreciated assets who want to enhance tax efficiency for a surviving spouse. It may be especially appealing when those assets are already part of a coordinated trust and wealth transfer plan or when the couple expects the surviving spouse to remain a Florida resident.
However, like any advanced estate planning tool, it isn’t right for everyone. Several factors should be weighed carefully.
When commingling assets may be a concern
If a married couple holds their property separately and has concerns about commingling assets, converting separate property into community property could affect asset division in a later dissolution of the marriage. Taking separate property and transferring it into a joint property or community property trust could change how that property is treated as a marital asset in divorce or under equitable distribution rules.
Understanding how to divide your money in a divorce and how community property status might influence property division can help you weigh whether this strategy aligns with your priorities.
Non-U.S. citizen spouse considerations
If one or both spouses are non-U.S. citizens, there should be caution in converting separate property to community or joint property. Transfers to a U.S. citizen spouse are generally not taxable gifts, but transfers to a non-U.S. citizen spouse can be treated differently under federal tax law, depending on the value of the transferred assets and annual exclusion limits.
For couples in this situation, reviewing financial strategies for American expats marrying non-U.S. citizens and working with advisors familiar with cross‑border planning can help ensure a Florida Community Property Trust doesn’t inadvertently create gift tax or estate tax issues.
Creditor protection trade-offs
Some married couples in Florida intentionally hold property as tenants by the entirety for creditor protection purposes. Under that form of ownership, a creditor of only one spouse generally can’t attach tenancy by the entirety property. A creditor claim against one spouse may be limited to that spouse’s sole assets.
Moving assets into a community property trust may change the creditor protection analysis. Community property treatment can increase exposure if a creditor is able to reach community property to satisfy a claim. This is an important consideration for asset protection planning, especially for professionals or business owners.
For families evaluating multiple trust strategies, understanding tools like lifetime asset protection trusts can provide additional context surrounding how different structures address creditor protection and asset protection goals.
When assets have declined in value
Assets don’t always get a step-up. Assets can get a step-down if the fair market value at death is less than their historical basis. This prevents anyone from benefiting from a loss deduction when the asset is sold, because the loss is essentially a reset.
As a result, it may not make sense to convert assets with substantial unrealized losses to community property status in a Florida Community Property Trust. In these cases, preserving the existing basis outside the trust may offer more flexibility for using capital loss deductions in the future. Fortunately, this is a relatively narrow circumstance, but it’s worth considering as part of a thorough tax analysis.
How Community Property Trusts Fit Into Your Broader Strategy
A Florida Community Property Trust usually works best as one piece of a much larger plan. In many cases, this broader strategy also involves revocable trust planning, beneficiary coordination, wealth transfer goals and long‑term estate tax strategies.
A couple might use a Florida Community Property Trust primarily for income tax and capital gains tax benefits while also implementing other estate planning structures to address estate tax, marital asset protection and multigenerational planning. For example, some families combine this approach with spousal lifetime access trusts (SLATs) to address both tax efficiency for a surviving spouse and long‑term wealth transfer outside the taxable estate.
Additionally, families with trust‑owned real estate should consider practical implementation details, like how to insure a trust-owned home and avoid coverage gaps, as the trust agreement and ownership structure can affect insurance policies and how homestead property is insured.
For families with international considerations or cross‑border assets, reviewing our guide to international estate planning for cross-border families can help ensure a Florida Community Property Trust coordinates with global estate planning, treaty issues and foreign community property rules.
The Role of Professional Guidance
Because Florida Community Property Trusts sit at the intersection of estate planning, income tax law, marital property rules and Florida homestead protections under the Florida Constitution, they’re not a do‑it‑yourself strategy. The trust agreement must be drafted carefully to comply with Florida statute requirements, coordinate with existing revocable trust structures and reflect the couple’s goals around community property rights, equitable distribution and creditor protection.
An experienced estate planning attorney admitted to the Florida Bar, working alongside a wealth manager and tax professional, can help you determine whether this planning tool fits your situation. They can also help you understand how the trust will operate during both spouses’ lifetimes, what happens at the first spouse’s death and how a surviving spouse and future beneficiaries might benefit from the community property treatment.
Should You Consider a Florida Community Property Trust?
A Florida Community Property Trust can be a powerful estate planning tool for married couples with substantially appreciated assets. By allowing certain trust assets to receive potential community property treatment, a Florida Community Property Trust may provide a full step-up in basis at the time of the first spouse’s death. Essentially, a Florida Community Property Trust is the estate planning version of a Publix “buy one, get one free” sale, in which one spouse’s death may create two basis step-ups instead of one for properly structured community property assets.
It’s important to remember that the Florida Community Property Trust Act is still relatively new, and it remains largely untested in federal tax litigation, so any projected tax benefit should be weighed against legal uncertainty and coordinated with broader estate tax and income tax planning.
All things considered, for married couples with substantially appreciated property, the potential tax benefit and asset protection opportunities may make a Florida Community Property Trust an important planning option worth exploring with a wealth manager or an estate planning attorney. For comprehensive support, explore Creative Planning’s estate planning and future wealth services to see how this strategy might coordinate with your overall estate planning, marital property and asset protection goals.
