1. How can a community property trust help me save on taxes?
Community property trusts help married couples save money by reducing or even eliminating capital gains tax after the first spouse’s death. This makes it easier for the surviving spouse to sell their inherited account or property without losing a significant portion of the sale’s profits to taxation. This type of trust uses a longstanding tax benefit for community property, and, for the right person, can save much money.
2. Should everybody have a community property trust?
The quick answer is “no.” Like all estate planning, legal, and tax strategies, you and your team must consider the advantages and disadvantages, and no single approach is a perfect fit for everyone. That being said, community property trusts can be a great solution for married couples who have accounts and property that they are comfortable holding onto until one of them dies.
3. Can I have a community property trust if I do not live in a community property state?
Alaska, Florida, Kentucky, South Dakota, and Tennessee allow nonresidents to create community property trusts, offering the tax benefits of community property to residents of noncommunity property states. The married couple must create a community property trust (a particular type of joint revocable trust) that complies with the laws of the applicable state. Of course, the trust must also be funded (the trust becomes the owner of the accounts and property) and managed properly as well. It can be somewhat technical, and noncompliance with the rules could void the tax-saving benefits of the trust, so it is best to seek professional assistance to explore whether a community property trust is a good fit for you and your family.