Estate Planning includes the necessary documents that will benefit both you and your loved ones in the event of your incapacity and upon your death. It is important that you plan now while you are healthy so that you can select appropriate individuals to handle your affairs instead of having the court appoint an individual to handle your affairs. In addition, you need to choose your beneficiaries so that the State of Florida will not determine who will receive your assets. By taking the time to plan now, you can decide who will make decisions for you if you become incapacitated and upon your death, decide the manner and timing of distributions to your beneficiaries, and you can avoid probate and minimize taxes.
Below are the Five basic Estate Planning documents:
Revocable Living Trust:
o The Trust Maker (you) keeps control over assets while alive
o The Trust Maker instructs what happens to trust assets at your death
o Provides privacy
o Can be amended or terminated
o Can reduce or eliminate estate taxes
o Avoids the time consuming and costly process of probate
o Maintain control over beneficiaries inheritance to protect from spouses, predators and creditors
o Must title assets in the name of Trust, also known as funding your Trust
Last Will and Testament:
o Does not avoid probate
o Goes into effect after you pass away for assets that are titled in your name alone
o Provides instructions to the probate court as to who will receive your assets
o States who you want as Personal Representative of your estate
Durable Power of Attorney (Financial):
o Allows you to appoint someone to manage your financial affairs if you are unable to do so
o Effective once signed
o Not effective once you pass away
o Can avoid guardianship
o Very powerful; trust whomever you appoint
Health Care Surrogate/HIPAA Authorization:
o Allows you to appoint someone to make health care decisions on your behalf if you are unable to do so
o Gives your loved ones access to your medical records
Living Will:
o A declaration that allows you to clearly state whether you want life prolonging procedures to be withheld or withdrawn in the event you have a terminal condition, end stage condition or in a persistent vegetative state.
There is not a one size fits all estate plan. Every client has unique planning concerns and each plan should be customized to reflect their goals and dreams. Therefore, we have a client centered process in place where you will need to consider what is important to you now, if you are incapacitated and upon your death. We will then give you several options to choose from that will encompass your goals and dreams that will allow you to maintain control during incapacity, reduce the time and costs involved in wealth transfer at your death and protect your beneficiaries.
Pittman Law Office can help you create a comprehensive estate plan that will ensure that your concerns are dealt with and your intent and wishes are carried out now and in the future.
Contact our office for a Complimentary Initial Consultation to meet with one of our attorneys to discuss how to design an estate plan that can protect, improve and enhance the lives of your beneficiaries.
Florida Community Property Trust
A Potential Tax-Saving Strategy for Married Couples
Florida is not a community property state. However, since 2021, Florida law has allowed married couples to intentionally create a Florida Community Property Trust and choose to treat property placed into that trust as community property.
For some married couples, a Florida Community Property Trust may provide an important income-tax advantage when the first spouse dies—potentially allowing the surviving spouse to receive a new tax basis in the trust assets.
At Pittman Law Office, we help Florida families understand whether a Community Property Trust makes sense as part of their overall estate plan.
A Florida Community Property Trust is a special type of trust that allows a married couple to elect community property treatment for assets transferred to the trust.
During the marriage, the assets held in the trust are treated as community property under Florida law. The trust agreement determines how the property is managed and controlled and what happens to the property during the spouses’ lifetimes and after the death of one spouse.
A Community Property Trust is different from a traditional joint revocable trust and should not simply be added to an estate plan because of its potential tax benefits. The couple’s assets, goals, family circumstances, and tax situation should all be considered.
The primary reason many married couples consider a Florida Community Property Trust is the potential income-tax basis adjustment when the first spouse dies.
What is a “step-up” in basis?
When you own an appreciated asset, such as an investment account, stock, business interest, or real estate, there can be a significant difference between what you originally paid for the asset and what it is worth today.
That difference can create capital gain if the asset is later sold.
For example:
Suppose a married couple purchased an investment property for $300,000, and it is worth $900,000 when the first spouse dies.
If the property receives an appropriate adjustment in income-tax basis at the first spouse’s death, the surviving spouse’s basis could potentially be increased substantially. If the surviving spouse later sells the property, this may reduce the amount of taxable capital gain.
The federal tax rules governing community property can provide significant benefits in this situation, and Florida law specifically provides that a qualifying Florida Community Property Trust is treated as a trust established under community property laws for purposes of Internal Revenue Code §1014(b)(6).
However, the tax result depends on the particular assets, trust provisions, and circumstances. A Community Property Trust should be designed with both estate-planning and tax considerations in mind.
Generally, both spouses create and sign the Community Property Trust and transfer selected assets into it.
The Florida Trust Code requires a Community Property Trust to meet specific requirements, including:
- The trust must expressly state that it is a Community Property Trust.
- The trust must have at least one qualified trustee.
- Both spouses must sign the trust in accordance with Florida’s trust-execution requirements.
- The trust must contain specific statutory language explaining the potentially significant consequences of creating the trust.
The couple can establish provisions addressing management and control of the trust property, whether the trust is revocable or irrevocable, and what happens to the property upon death or other specified events.
At the death of the first spouse, the Community Property Trust generally recognizes each spouse as having a one-half share of the community property.
The surviving spouse’s share and the deceased spouse’s share can then be addressed according to the terms of the trust and the couple’s estate plan.
One of the important considerations is the potential income-tax basis adjustment for the community property at the first spouse’s death.
This can be particularly valuable for couples who own highly appreciated assets.
The surviving spouse may also have the ability under Florida law to amend the trust concerning the disposition of the surviving spouse’s one-half share, even if the Community Property Trust is irrevocable.
A Community Property Trust may be worth considering for married couples who:
- Own substantially appreciated assets;
- Have significant investment or real estate holdings;
- Expect continued appreciation of their assets;
- Want to explore potential capital-gains tax savings;
- Are comfortable with the legal and ownership consequences of community property treatment; or
- Have moved to Florida from a community property state and want to understand how their existing community property can be incorporated into their Florida estate plan.
It may be particularly important to evaluate a Community Property Trust when a couple has assets with a large unrealized capital gain.
No.
A Community Property Trust changes the legal character of property placed into the trust and can affect the spouses’ rights with respect to the property.
It can also have implications involving:
- Creditor claims;
- Divorce;
- Property management and control;
- Business interests;
- Real estate such as homestead property;
- Existing trusts;
- Prenuptial or postnuptial agreements;
- Estate-tax planning;
- Income-tax planning; and
- The disposition of assets after the first spouse dies.
Florida law specifically warns that the consequences of a Community Property Trust can be extensive, including rights involving creditors, the spouses’ relationship, divorce, and death. We do not recommend placing homestead property into a Community Property Trust.
For that reason, a Community Property Trust should be considered as part of a comprehensive estate plan—not simply as a tax-saving technique.
A traditional joint revocable trust and a Florida Community Property Trust can look similar from a client’s perspective, but they serve different purposes.
A traditional revocable trust is commonly used to:
- Avoid probate;
- Organize assets;
- Provide for incapacity;
- Control the distribution of assets after death; and
- Provide continuity of management.
A Florida Community Property Trust can accomplish many estate-planning objectives while also changing the character of qualifying assets to community property and potentially providing significant income-tax benefits.
The question is not simply, “Should we have a trust?”
For some couples, the more important question may be:
“What type of trust is most appropriate for our assets, our family, and our tax situation?”
This is an especially important issue for couples who recently moved to Florida from a community property state.
Assets that were community property under another state’s laws may have special considerations when incorporated into a Florida estate plan. Florida law provides specific rules addressing community property that was established under another jurisdiction’s laws and later transferred to a Florida Community Property Trust.
If you recently moved to Florida, it is important to have your existing estate plan and asset ownership reviewed rather than simply assuming that your previous plan continues to provide the same results.
There is no one-size-fits-all answer.
At Pittman Law Office, we start by understanding your family, your assets, your goals, and your existing estate plan. We then explain the available options and help you understand the advantages and disadvantages of each approach.
A Community Property Trust may be an excellent planning tool for some Florida couples—but it is not automatically the best choice for everyone.
If you are married, live in Florida, and own appreciated investments, real estate that is not your homestead property, or other significant assets, a Florida Community Property Trust may be worth discussing with your estate-planning attorney.
Contact Pittman Law Office to learn whether a Florida Community Property Trust may be appropriate for your estate plan.
This information is provided for educational purposes only and is not intended to provide legal or tax advice. The potential tax benefits and legal consequences of a Florida Community Property Trust depend on the individual circumstances of each couple. Tax laws are subject to change, and clients should consult with their estate-planning attorney and tax advisor regarding their specific situation.