We’ve previously covered many of the tax laws that Tennessee has enacted to make the state a leader in the trust world. The Tennessee Community Property Act of 2010 is one such measure, which can benefit families nationwide. Tennessee is one of only five states that allow community property trusts.
The Tennessee community property trust allows a couple to convert individual or joint property to community property within the trust. This trust structure is worth considering for married couples who own low basis assets.
Many families own assets such as real estate or a family business. These types of assets may have been acquired years previously, and, often, as the value appreciates, the tax basis remains low. In these cases, couples may transfer property into a community property trust. Subsequently, when one spouse dies, the assets within the trust receive a full step up in basis. In other words, both spouses’ ownership shares receive a step up at the time of the death of the first spouse. As a result, the surviving spouse will benefit from a savings in capital gains tax if or when he or she sells the assets held in trust.
Many couples use Tennessee community property trusts in order to easily equalize asset ownership between the two spouses, and to take advantage of tax savings down the road. Additionally, a Tennessee community property trust can serve as a different avenue of revocable trust. Often, the trust is set up to be revocable until the death of the first spouse, when it then becomes irrevocable. This structure can protect the surviving spouse from creditors and predators.
Families residing in any state can take advantage of the benefits of the Tennessee community property trust by appointing a Tennessee resident trustee or Tennessee chartered trust company. A trusted estate planning attorney will be able advise whether this type of trust could benefit your family.