Russ Cook & Associates, PC
view our Practice areas

Reduce taxes by using a community property trust

For many years, Tennessee looked at spousal assets as either marital or separate. Marital property, meaning assets acquired during the course of marriage, were subject to equitable distribution if the marriage ended in divorce.

Separate property referred to items that were acquired outside of the marriage. This could include property purchased prior to marriage as well as to gifts and inheritances a spouse received during marriage. Now, spouses have a third option for property ownership: community property.

In 2010, Tennessee passed the Tennessee Community Property Trust Act of 2010. This bill allows married couples to convert property owned either jointly or separately into community property by placing the assets inside a community property trust (CPT).

The primary benefit of using a CPT is that there can be significant tax advantages for couples that own highly appreciated assets.

How community property trusts reduce capital gains taxes

Imagine a couple purchases some real estate for investment purposes for $250,000. Some time later, one spouse dies when the property is worth $750,000. The property has total gains of $500,000.

Without a CPT, only half of the property would likely receive a step-up in basis. This means the surviving spouse’s cost basis would be $375,000 (50% of the gains, plus 50% of the original cost basis). If the surviving spouse sells the property, they may face capital gains taxes on the $375,000 of gains. That could leave the surviving spouse with a tax bill of nearly $90,000 if taxed at the maximum rate.

However, if the real estate is placed in a CPT, the entire property will likely see a step-up in basis. This means that the surviving spouse’s new cost basis would be $750,000. If the property is then sold for $750,000, there will be no capital gains taxes incurred.

Potential downsides of using a community property trust

While there is good reason to consider using a CPT, there are negative consequences that could arise when using one.

One disadvantage is that the property in the CPT has less protection from creditors and lawsuits. If either spouse is sued or winds up with a large amount of debt, both parties could lose their share of the property.

The CPT can also make things more disadvantage for a spouse if the marriage ends in divorce. Separate assets are typically not included in the distribution of assets in divorce. However, if the assets are in a CPT, then each spouse may be eligible to receive 50% of the assets, regardless of how they were originally acquired.

Tax planning is a key element of a comprehensive estate plan. Taking steps to limit how much of your assets may be taxed can offer lasting benefits for your loved ones.

No Comments

Leave a comment
Comment Information

What Our Clients Are Saying About Us

  • Star

    “I recently moved to TN from MN and needed to re-do my trust documents, including a pet trust, to be compliant with TN law, and to find an entity able to act as my trustee. Russ and his staff were able to answer all of my questions quickly and efficiently, and I am comfortable and confident in Russ's representation and that my new documents will act as they are intended, when the time comes. They even put me in touch with a trustee who was involved in the process as well, which was so helpful. This was a big item on my move "to-do" list, and I am so pleased to have it completed!”

    - Kim J.
  • Star

    “We would definitely recommend Russ and any of his Associates. They are all very professional, efficient and well versed in Estate Planning.”

    - Cheryl H.
  • Star

    “Experienced, Knowledgeable, Friendly, Professionals all work here. I'm grateful my parents used this firm to create and maintain their Trust throughout the years. Working with the folks at Russ Cook & Associates, primarily Alex, Debby and Trina made the process comfortable working through Probate, Estate assets and Executing the Trust.”

    - Kemp S.
  • Star

    “Excellent work. They worked with us and never allowed us to miss a deadline. We definitely appreciated their help and would gladly recommend them to anyone seeking help with their estate planning.”

    - Mark S.
  • Star

    “Everyone we came in contact with was wonderful. The staff and Russ treated us like family at all times.”

    - June S.
  • Star

    “Being new to the area having moved from out of state, I was searching for an attorney to assist in elder estate planning for my mother. I was referred to Russ Cook & Associates and found the firm as a whole and Russ Cook himself to be very helpful and accommodating to my needs, as well as experienced and very knowledgeable on the matter I was seeking assistance. I would definitely recommend Russ Cook and Associates.”

    - Brad H.
  • Star

    “Mr. Cook and his staff were phenomenal to work with on my will. They are extremely professional and friendly and made the process seamless. They go above and beyond!”

    - Amber C.
  • Star

    “Russ took the time to answer my questions by email, so that I knew exactly what would take place when I visited his office and his time as well as mine was used efficiently. I appreciated his thoroughness and his professionalism, as well as that of his staff.”

    - JoAnn G.
  • Star

    “Overwhelmingly positive experience.”

    - Stephen W.
  • Star

    “I have been a client for many years. Russ and his staff listen to our concerns, come up with a plan and help us act on it with guidance and professionalism. I'd highly recommend Russ Cook and Associates.”

    - Dr. S. D'Amico
Email Us For A Response

Schedule An Initial Consultation Today

Contact us today to schedule a consultation by sending us an email or by calling 615-200-9117.
We assist clients throughout the Nashville area.

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Brand Contact

5141 Virginia Way
Suite 220
Brentwood, TN 37027

Phone: 615-200-9117
Fax: 615-370-5938
Brentwood Law Office Map

Office Hours:
Monday: 8:00 AM – 4:30 PM
Tuesday: 8:00 AM – 4:30 PM
Wednesday: 8:00 AM – 4:30 PM
Thursday: 8:00 AM – 4:30 PM
Friday: 8:00 AM – 4:30 PM

Summer Hours Office:
8:00 AM - 1:00 PM on Fridays
May 24th Through August 30th

Map Image