Community Property Trust (CPTs)

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Most states in the U.S., including Tennessee and Kentucky, follow separate property rules, where each spouse individually owns the property titled in their name. This means that, upon the death of one spouse, only that spouse’s share of jointly held property receives a step-up in tax basis. However, a unique estate planning tool known as a Community Property Trust (CPT) allows married couples to elect community property treatment and receive a full step-up in basis, even in states that are not traditionally community property jurisdictions.

At Crow Estate Planning & Probate, we help couples in Tennessee, Kentucky, and beyond take advantage of Community Property Trusts to reduce capital gains taxes and enhance their estate planning strategy

How the Step-Up in Basis Works

Capital gains taxes are assessed on the difference between the sale price of an asset and its tax basis (usually its original purchase price). A step-up in basis adjusts the asset’s value to its fair market value on the date of death, reducing or eliminating any taxable gain.

In a standard joint ownership scenario under separate property law:

• Only the deceased spouse’s half of the asset receives a step-up in basis.
• In a Community Property Trust:
• Both halves of the jointly held community property receive a step-up in basis when the first spouse dies.

This offers a powerful tax-saving advantage when the surviving spouse later sells the appreciated assets.

Which States Allow Community Property Trusts?

While most states do not recognize community property, a growing number allow married couples to elect community property treatment by creating a Community Property Trust. These states include:

•Tennessee
•Kentucky
•Alaska
•South Dakota
•Florida
 

In these jurisdictions, couples can opt into community property treatment through a properly structured trust, even though the state does not generally follow community property law.
 

What Types of Property Can Be Included in a CPT?

A wide range of marital assets can be included in a Community Property Trust, such as:

•Real estate
•Investment portfolios (non-retirement)
•Business interests
•Bank accounts
•Vehicles and personal property
•Other appreciable assets

Note: Property owned by one spouse prior to marriage, as well as gifts or inheritances, can generally be included only if both spouses agree to treat it as community property and transfer it into the trust.

Managing and Using a CPT

•Joint Control: Most CPTs name both spouses as co-trustees, so they retain full control of the trust assets during their lifetime.
•Survivor’s Role: When one spouse dies, the surviving spouse typically becomes sole trustee and continues to manage the trust.

•Customized Terms: The trust can include provisions for how the remaining assets will be distributed to beneficiaries, including children, grandchildren, charities, or other individuals.
 

What Happens in the Event of Divorce or Relocation?

•Divorce: Typically, one of the biggest issues with a CPT is that upon a divorce, unless the parties agree otherwise, all assets in a CPT will be divided 50/50 between husband and wife. Additionally, a CPT can be revoked or modified as part of a divorce settlement. Property acquired after separation is generally considered separate property unless added to a new trust.
•Relocation: If you move out of a state that allows CPTs, the trust’s tax treatment may change depending on the new state’s laws. We recommend reviewing your plan with an attorney if you’re planning to relocate.
Is a Community Property Trust Right for You?

A CPT may be a strong fit if you and your spouse:
•Own highly appreciated property
•Want to reduce future capital gains taxes
•Have a stable and long-term marriage
•Desire clear, unified ownership of joint assets
•Are relocating from a traditional community property state
•Want a simplified, tax-efficient legacy for your heirs

At Crow Estate Planning & Probate, we offer practical guidance and personalized estate planning for individuals and families in Tennessee, Kentucky, and beyond. We’ll help you determine whether a Community Property Trust fits your financial and family goals.

Our Process

When you schedule a consultation with our team, here’s what to expect:

1.Review your goals and assets
2.Determine if a CPT is beneficial for your situation
3.Identify which assets to include
4.Draft and execute the trust documents
5.Guide you through trust funding and long-term maintenance

We offer transparent, flat-fee pricing and a tailored approach to every client’s plan.

Let’s Discuss Your Asset Ownership

Ready to learn more about CPTs? Call 931-213-5543 or contact us to schedule an appointment today.

FAQs

Is my state a community property state? 

Most U.S. states—including Tennessee and Kentucky—are separate property states. However, several states allow couples to elect community property treatment by creating a Community Property Trust.
 

Which states allow Community Property Trusts? 

As of now, Tennessee, Kentucky, Alaska, South Dakota, and Florida permit married couples to establish a CPT by statute, offering the benefits of community property without requiring residency in a traditional community property state.
 

What is the tax benefit of a CPT? 

A CPT offers a full step-up in basis on trust property when one spouse dies. This can eliminate or significantly reduce capital gains taxes for the surviving spouse.
 

Can we create a CPT if we don’t live in a CPT-authorizing state? 

Possibly. Some states allow out-of-state residents to create a CPT if certain requirements are met, such as having a trustee who resides in the state. Speak with an attorney to evaluate your options.
Can we include assets owned before marriage or received by inheritance? 

Yes, but only if both spouses agree to treat them as community property and formally transfer them into the trust.

What happens to the CPT in a divorce? 

A CPT can be dissolved or modified as part of divorce proceedings. New property acquired after separation is usually considered separate property.

Will a move affect the CPT’s effectiveness? 

It might. Moving to a state that does not recognize Community Property Trusts could affect the tax treatment. Always review your estate plan with legal counsel when relocating.

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Hear From Our Clients

Bill Boyd

Where do I begin? I truly can’t say enough nice things about Crow Estate Planning & Probate and Alexandra Hulme, without her and everyone around her, I can truly say I don’t know where I would be today. Like many after losing my mother, I was lost, in a dark place and things weren’t happening how my mother had planned in her trust and will. Before waiting too long, I retained Alexandra’s services and she took me through the process step-by-step. Something that I never thought I could afford or I’d have to do. She knew I wasn’t asking her to do anything more than complete my mother’s last wishes. She did just that. They did it because they’re passionate about what they do. Communication was A+. She never left me hanging. I know family means a lot to her/them. I am indebted to her and these people forever. If you need help, call her today. I promise you won’t be disappointed. Thank you Alexandra from the bottom of my heart.
 
 

Travis Henry

I was referred to John by a fellow real estate investor when I needed guidance on structuring a couple of LLCs. From the start, he made the process incredibly smooth and straightforward. John was consistently responsive, thorough in his explanations, and showed a genuine commitment to getting everything completed on time—even working late to accommodate my schedule while I was operating from Hawaii, several time zones away. His mix of professionalism, attention to detail, and approachable demeanor made the entire experience seamless. I’m grateful to have him as a resource and wouldn’t hesitate to recommend him to anyone looking for a reliable and knowledgeable attorney.
 
 
 

Andre Christophe

Bridget and Thomas were very professional and knowledgeable in responding to my needs. Also, they were very organized and easy to work with. 
 
 
 

Allen Moser

This firm has done several things for me and real estate clients. Most recently setting up a TIST (Tennessee Investment Services Trust). And redoing my Will, Medical Power of Attorney, and Healthcare Directive. Appreciated their understanding of all of the intricacies of each document. Their timely communication and prompt service.
 
 
 

Sarah Pichardo

I cannot recommend Thomas Steelman highly enough! From the very start, he made the entire process of setting up our estate trust absolutely painless. His expertise and clear explanations turned what I expected to be a daunting task into a smooth and stress-free experience.

Not only did he handle every aspect of our estate trust with great attention to detail, but he (and law firm colleagues) also took care of transferring over our home deeds so we didn’t have to deal with the hassle of going to the county office ourselves. That alone saved us so much time and stress!

I honestly thought the process was going to cost a small fortune, but I was pleasantly surprised by how reasonable the pricing was. Most importantly, though, Thomas gave us peace of mind knowing that our hard-earned assets are protected and will go exactly where we want them—without placing unnecessary burdens on our loved ones.

If you’re looking for a knowledgeable and professional estate trust attorney, Thomas and team are the ones to trust. ⭐⭐⭐⭐⭐

Scott Donnellan

John and his team are professional and do quality work.
 
 
 

Ariel Ottinger

John and his team did an amazing job helping my family get our affairs in order. Could not recommend them more!

Larissa Ottinger

hey are so prompt to respond and attentive!

Emily Vick

Alexandra Hulme was extremely helpful, professional, and punctual! I highly recommend using this firm.

Austin Joaquin

Highly recommend for all of your probate needs. Compassionate and professional.

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