Under the Tennessee Community Property Trust Act passed in 2010, spouses who own significant assets can equally share capital gains on assets while limiting their federal capital gains tax obligation. This law allows married couples to take advantage of the savings residents of community property states enjoy without leaving Tennessee, a common property state for estate taxation.
Review the benefits of establishing a community property trust and consider adding this type of account to your estate plan.
Enjoy tax advantages
When you place an asset in a community property trust, both spouses shares see an increased tax basis when the first spouse dies. This allows the surviving spouse to limit his or her tax burden on the capital gains he or she receives upon sale of the asset in question.
Add flexible investments
A community property trust is a type of joint revocable trust, which means that it can be completely revoked at any time for any reason. You can remove and add assets as you and your spouse see fit. This flexibility also applies to the type of assets these trusts can hold, including but not limited to mutual funds, bonds, stocks, shares in businesses, undeveloped lots and developed real estate.
Many individuals worry about the time, expense and invasion of privacy associated with the passage of an estate through probate. However, community property trusts are not subject to probate when either spouse dies. Your heirs can receive your property directly from the party you name as your will executor.
Simplify your estate
If you and your spouse divorce, the fate of your estate may become complicated. With this type of trust, however, you and your former partner simply split the contents of the trust evenly. You can also choose to co-own the trust and keep it a separate asset if either of you decides to remarry.
If the capital gains tax could significantly decrease the realized value of your assets, you want to preserve your property for the next generation. You can potentially achieve that goal with a community property trust.