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Integrating a Community Property Trust Into Your Estate Plan

Posted on: May 9th, 2017
Posted by:  The Life and Legacy Planning Group

A well-crafted estate plan has many individual parts, and careful, trust-based estate planning is the best way to ensure the best possible outcome for you and your loved ones.
 
One way that married couples can get the most mileage out of their estate plans is to create a Community Property Trust. A Community Property Trust is a special type of trust that can own a couple’s jointly acquired assets as community property and can save a significant amount of taxes.
 
Why Community Property Trusts (CPTs) are a great idea
The essential benefit of a CPT is that the basis of community-owned property is stepped up when one member of the couple dies. Not only that—it also steps up the basis for the surviving spouse’s half of the property (rather than only half, which is what happens with “plain” jointly owned property). This means that the capital gains tax will take a much smaller percentage of the surviving spouse’s wealth when the property is sold.
 
The limits of a Community Property Trust
There are two states in which CPTs can be formed: Alaska and Tennessee. These trusts must be funded and they have ongoing requirements in order to achieve their tax benefits. So, they are not a panacea and don’t necessarily fit every married couple’s situation.
 
How CPTs fit in with other estate planning strategies
If your estate plan is robust and ready for all of life’s potential successes and challenges, it likely includes any number of revocable and irrevocable trusts, powers of attorney, long-term care directives, and miscellaneous probate-avoidance precautions.
 
Community Property Trusts can only work for the property you transfer to them, meaning that you can and should have other strategies in place such as a Revocable Living Trust, Will, Power of Attorney, etc. The same property cannot be managed under multiple trusts at the same time, so it is important for us to determine which of your assets you’d like to set aside for other types of trusts before settling on the details of your CPT.
 
Community Property Trusts are not for everyone. However, if we determine that creating such a trust is a realistic fit for you and your family, you can expect to save a large sum by avoiding taxes you would otherwise accrue. Give us a call today to see whether this solution might be an effective addition to your other estate planning strategies. 

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