Updated March 5, 2026
A Kentucky Community Property Trust is a special type of revocable trust authorized under Kentucky law that allows married couples to elect community property treatment for assets transferred into the trust. When properly structured and funded, 100% of those assets receive a step-up in income tax basis at the first spouse’s death.
In practical terms, this type of trust can eliminate capital gains tax on appreciated assets if the surviving spouse sells them after the first death.
Kentucky enacted its Community Property Trust (CPT) statute in 2020 through Kentucky Revised Statutes §386.620–386.624. The statute permits spouses to opt into community property treatment even though Kentucky is not a traditional community property state.
As of 2026, the federal estate tax exemption is approximately $15 million per individual (indexed for inflation). Very few Kentucky families face federal estate tax exposure. However, many married couples hold:
- Rental real estate with decades of appreciation
- Farmland purchased at historically low basis
- Closely held businesses
- Large brokerage accounts with embedded capital gains
- Concentrated stock positions
- Vacation homes
- Cryptocurrency holdings
For these families, unrealized capital gains exposure often exceeds any potential estate tax exposure.
Without proper planning, Kentucky married couples generally receive only a half step-up in basis at the first spouse’s death. That means significant taxable gain may remain if the surviving spouse later sells the asset. The Community Property Trust was designed to solve that problem.
Before implementing one, however, couples must understand:
- How basis actually works
- What Kentucky law requires
- How divorce affects CPT assets
- How a CPT differs from a standard revocable trust
- When this strategy makes sense and when it does not
This guide walks through each of those issues in detail.
Understanding Capital Gains Exposure for Kentucky Married Couples
Most discussions of estate planning focus on “avoiding probate” or “avoiding estate tax.” For many married couples in Kentucky, neither is the primary financial risk. The primary risk is the capital gain tax.
When you sell something for more than you paid for it, the difference is profit. For tax purposes, that profit is called a capital gain.
If you purchased a piece of property for $100,000 and years later sell it for $1,000,000, the $900,000 difference represents gain. The IRS generally taxes that appreciation when the asset is sold.
For many married couples in Kentucky, this is a major issue. It often involves assets that have been held for decades, such as rental properties purchased early in a career, farmland that has remained in the family for generations, a closely held business that steadily increased in value, or investment accounts built over thirty or forty years.
Over time, appreciation compounds. The longer assets are held, the larger the embedded gain tends to become.
As of 2026, long-term capital gains are typically taxed at 15 percent for most taxpayers and 20 percent for higher-income taxpayers. In addition, certain taxpayers are subject to an extra 3.8 percent Net Investment Income Tax. In higher income situations, the combined federal rate can approach 23.8 percent. Rental property may also trigger depreciation recapture, which can increase the overall tax burden.
When applied to substantial appreciation, those percentages translate into meaningful dollars.
Consider a straightforward example. A married couple purchases a rental property years ago for $500,000. Today, the property is worth $1,500,000. That represents $1,000,000 of built-in gain. If the property is sold, federal capital gains tax alone could approach $180,000, depending on income level. Additional tax may apply for depreciation recapture. Bottom line: It is a six-figure tax event.
For many Kentucky families, this capital gains exposure is significantly larger than any realistic estate tax exposure under current federal exemption levels.
The critical question becomes whether there is a lawful way to reduce or eliminate that gain when one spouse dies. To answer that question, we must first understand what happens to an asset’s tax basis at death.
What Is a Step-Up in Basis?
When a person dies, something important happens for income tax purposes.
Under federal law, most assets owned by that person receive a new tax basis equal to their fair market value at the date of death. This adjustment is commonly referred to as a “step-up in basis.” In practical terms, it means that the appreciation that occurred during the decedent’s lifetime is wiped away for capital gains purposes.
To see how this works, consider a simple example.
Assume a mother purchased property years ago for $200,000. At the time of her death, that property is worth $900,000. If her child inherits the property, the child’s new tax basis becomes $900,000 — not $200,000.
If the child sells the property shortly after inheriting it for $900,000, there is no capital gain. The appreciation that occurred during the mother’s lifetime is eliminated for income tax purposes.
This adjustment is not a loophole. It is built directly into federal tax law.
For families holding highly appreciated assets, the step-up in basis can represent an enormous tax benefit. It allows heirs to sell assets without triggering decades of accumulated capital gain.
But there is an important nuance for married couples in Kentucky.
While a full step-up generally occurs when someone dies owning property outright, jointly owned property between spouses does not always receive a complete adjustment at the first spouse’s death.
In Kentucky, the default rule often results in only a partial step-up.
Understanding that limitation is essential before evaluating whether a Kentucky Community Property Trust makes sense.
The Half Step-Up Problem in Kentucky
When married couples in Kentucky own property together, the tax result at the first spouse’s death is often more complicated than people expect.
Many assume that when one spouse dies, the entire property receives a new tax basis equal to its current value. In reality, that is not usually how it works in Kentucky.
Because Kentucky is not a traditional community property state, only the deceased spouse’s one-half interest in jointly owned property typically receives a step-up in basis at the first death. The surviving spouse’s half generally keeps its original basis.
That distinction can make a significant financial difference.
Consider a simple example. A married couple purchases rental property years ago for $300,000. Over time, depreciation reduces the adjusted basis to $250,000. By the time the first spouse dies, the property is worth $1,200,000.
At that point, only half of the property — the deceased spouse’s half — receives a new basis equal to half of the fair market value. In this example, that half becomes $600,000.
The surviving spouse’s half, however, does not reset to market value. It retains its original adjusted basis, which would be half of $250,000, or $125,000.
When you combine those two numbers, the surviving spouse’s new total basis becomes $725,000.
If the property is later sold for $1,200,000, the taxable gain is the difference between the sale price and that adjusted basis — $475,000.
At a 20 percent federal capital gains rate, that alone could generate approximately $95,000 in tax. Depending on income level, the additional 3.8 percent Net Investment Income Tax may apply, and depreciation recapture could increase the overall burden.
The important takeaway is not the exact numbers.
Rather it is understanding that even after one spouse dies, a substantial portion of the appreciation may still be taxable if the property is sold.
Example: Tax Outcome With and Without a Community Property Trust
The difference between a partial step-up and a full step-up can be significant. The simplified example below illustrates how the tax outcome may differ depending on whether the property is held in a Community Property Trust.
|
Scenario |
Basis After First Death |
Taxable Gain if Sold for $1.2M |
Estimated Federal Capital Gains Tax* |
|
Joint Ownership (Typical Kentucky Treatment) |
$725,000 |
$475,000 |
~$95,000 |
|
Kentucky Community Property Trust |
$1,200,000 |
$0 |
$0 |
*Example assumes a 20% federal capital gains rate and does not include depreciation recapture or potential Net Investment Income Tax.
How a Kentucky Community Property Trust Creates a Full Step-Up in Basis
The Kentucky Community Property Trust was enacted to allow married couples in Kentucky to elect community property treatment for assets placed inside a properly drafted trust.
Although Kentucky is not a traditional community property state, the legislature authorized married couples to opt into that treatment through Kentucky Revised Statutes §386.620 through §386.624.
When assets are transferred into a valid Community Property Trust and properly administered, those assets are treated as community property for federal income tax purposes.
The practical consequence appears at the first spouse’s death. Instead of only one-half of the property receiving a new basis, 100 percent of the trust assets receive a step-up to fair market value under Internal Revenue Code §1014.
Returning to the prior example helps illustrate the difference.
Assume the same rental property originally purchased for $300,000, later worth $1,200,000 at the first spouse’s death. If that property is held inside a properly structured Community Property Trust, the entire property — not just half — receives a new basis equal to $1,200,000.
If the surviving spouse sells shortly thereafter for $1,200,000, there is no capital gain. The lifetime appreciation has effectively been eliminated for income tax purposes.
The difference between a half step-up and a full step-up in that example is the difference between a six-figure tax bill and no capital gains tax at all.
That is the core economic function of the Community Property Trust.
- It does not reduce estate tax.
- It does not eliminate probate by itself.
- It does not provide creditor protection.
Its primary purpose is basis optimization at the first spouse’s death.
For couples holding highly appreciated assets (particularly real estate, farmland, closely held businesses, or long-held investment portfolios) that distinction can materially change post-death liquidity and planning flexibility.
The decision to implement a Community Property Trust, however, should not be made solely on tax savings. There are statutory requirements, funding considerations, and marital property implications that must be understood before proceeding.
Those issues are just as important as the tax benefit itself.
What Kentucky Law Actually Requires
The Kentucky Community Property Trust is not simply a branding label. It is a statutory creation governed by Kentucky Revised Statutes §386.620 through §386.624.
For a trust to qualify as a Community Property Trust under Kentucky law, certain requirements must be met.
First, the trust instrument must expressly declare that it is intended to be a Kentucky Community Property Trust under the statute. This designation cannot be implied. The statute requires clear language electing community property treatment.
Second, both spouses must sign the trust agreement. The election to treat property as community property is voluntary, and it requires affirmative consent by both spouses.
Third, the trust must have at least one qualified trustee. Under the statute, that trustee must either be:
- A Kentucky resident, or
- A corporate fiduciary authorized to act as trustee in Kentucky
Without a qualified trustee, the trust does not satisfy statutory requirements.
Fourth, only property that is actually transferred into the trust receives community property treatment. Simply creating the trust document is not enough. Assets must be properly retitled or assigned to the trust.
In practice, this means deeds must be recorded for real estate, brokerage accounts must be retitled, and business interests must be properly assigned. If assets are left outside the trust, they do not receive community property treatment.
Finally, the statute addresses what happens if the spouses later divorce. Under Kentucky law, unless otherwise agreed, community property trust assets are generally divided equally upon divorce. That feature is embedded in the statutory framework.
A Kentucky Community Property Trust is not merely a revocable trust with different marketing language. It is a statutory election that changes how assets are characterized between spouses and how they are treated for income tax purposes at death.
Because the election has both tax and marital property consequences, the drafting and funding process must be deliberate and precise.
Divorce and Marital Property Implications
Under Kentucky Revised Statutes §386.624, property held inside a valid Community Property Trust is generally treated as community property between the spouses. If the spouses later divorce, the statute provides that, absent a different agreement, the community property is divided equally.
That rule applies regardless of who originally contributed the asset and that is critical.
If one spouse brought substantially more wealth into the marriage, or if certain assets were originally separate property, transferring those assets into a Community Property Trust may convert them into property that is treated as equally owned for purposes of division upon divorce.
For long-term marriages with jointly built wealth, that may not be controversial. But for second marriages, blended families, or marriages involving significant unequal asset contributions, the implications can be substantial.
It is also important to understand that the Community Property Trust election is not simply a tax classification. It alters how property is characterized between spouses.
In many cases, a prenuptial agreement or postnuptial agreement should be reviewed before implementing a Community Property Trust. In other cases, careful drafting may carve out specific assets or address allocation concerns.
The key point is this: A Kentucky Community Property Trust is both a tax election and a marital property election.
The decision to create one should not be made solely based on projected capital gains savings. It must be evaluated in light of the spouses’ overall marital and estate planning structure. For couples in stable, long-term marriages with aligned financial interests, the risk may be minimal. For others, it may require deeper analysis.
Asset Protection and Creditor Considerations
It is important to be clear about what a Kentucky Community Property Trust does and what it does not do.
A Community Property Trust is primarily an income tax planning tool. Its purpose is to optimize basis at the first spouse’s death. It is not an asset protection trust.
When property is transferred into a Community Property Trust, the manner in which the property is titled changes. Assets inside the trust are governed by the trust agreement and the statutory community property framework. Although careful drafting may address certain concerns, couples should not assume that transferring property into a Community Property Trust automatically preserves every form of creditor protection that may exist outside the trust structure.
Most Community Property Trusts are revocable during the spouses’ lifetimes. As a result, assets inside the trust are generally considered available to the spouses for purposes of creditor claims. A revocable trust does not shield assets from the claims of the grantor’s creditors.
For couples with meaningful exposure to liability, including business owners, real estate investors, and professionals in higher risk fields, the creditor implications should be analyzed before transferring property into a Community Property Trust.
It is also important to distinguish a Community Property Trust from other trust structures that are specifically designed for asset protection planning. A Community Property Trust is not structured to insulate assets from creditors. Its primary function is income tax basis optimization. If asset protection is a significant concern, that issue should be evaluated independently before implementing a Community Property Trust
As with divorce considerations, the decision to create a Community Property Trust should be made in the context of the couple’s complete financial picture and not based solely on projected tax savings.
How a Community Property Trust Differs from a Standard Revocable Trust
Many couples already have a revocable living trust. A common question is whether a Community Property Trust is simply a different label for the same structure. It is not.
A standard revocable trust is designed primarily to avoid probate, provide continuity of management during incapacity, and direct the distribution of assets at death. It does not, by itself, change the income tax treatment of jointly owned marital property at the first spouse’s death.
In Kentucky, if jointly owned property is placed into a typical revocable trust without electing community property treatment under the statute, the result at the first spouse’s death is generally the same as if the property had been held jointly outside of a trust. Only one half of the property receives a step up in basis.
A Community Property Trust adds a specific statutory election that changes how assets are characterized between the spouses for income tax purposes. That election is what produces the full basis adjustment at the first spouse’s death.
In practical terms, both structures can accomplish probate avoidance. Both can provide incapacity planning. Both can direct how assets pass at death.
The difference lies in how the assets are treated for income tax purposes when one spouse dies.
Finally, a Community Property Trust should not be confused with an irrevocable asset protection trust. A CPT is typically revocable and is not designed to remove assets from the reach of creditors or for Medicaid planning purposes.
In short, a Community Property Trust is a targeted tool. It modifies the income tax result at death. It does not replace every other planning structure, and it does not eliminate the need for broader estate planning.
The question is not whether one structure is universally better than the other.
The question is which structure aligns with the couple’s priorities, risk profile, and long term objectives.
Who Should Consider a Kentucky Community Property Trust
A Kentucky Community Property Trust can be an effective planning tool for some couples, but it is not universally appropriate. The decision to implement one should be based on the nature of the couple’s assets, the level of built-in capital gain, and the broader structure of the estate plan.
The structure tends to be most valuable when a married couple owns assets that have appreciated substantially over time. Long held real estate is a common example. Many Kentucky families purchased rental properties, farmland, or commercial property decades ago at relatively modest prices. As those assets increase in value over the years, the difference between the purchase price and the current value can become significant.
Investment portfolios can present the same issue. A portfolio built slowly over thirty or forty years often contains securities with very low original basis. If those assets are eventually sold after the first spouse’s death, a partial step up in basis may still leave a large amount of taxable gain.
Family businesses can present similar dynamics. When a closely held business grows over time, the owners’ original investment may represent only a small portion of the current value. A full step up in basis at the first spouse’s death can materially change the tax consequences if the business is later sold.
In these situations, the tax benefit of a Community Property Trust can be meaningful. Eliminating a large, embedded capital gain may preserve hundreds of thousands of dollars that would otherwise be paid in tax.
However, there are also circumstances where a Community Property Trust may not provide significant benefit.
If a couple’s assets have minimal appreciation, the difference between a half step up and a full step up may be relatively small. In those cases, the additional complexity of the structure may not be necessary.
Likewise, couples whose primary assets consist of retirement accounts such as IRAs or qualified plans may see little benefit. Retirement accounts do not receive the same basis adjustment at death because they are generally subject to income tax rather than capital gains tax.
Marital circumstances should also be considered carefully. Because assets placed into a Community Property Trust are generally treated as community property between the spouses, the implications in the event of divorce should be understood before implementing the structure.
Finally, creditor exposure and long term care planning may affect the analysis. A Community Property Trust is not designed as an asset protection vehicle and it is not a Medicaid planning tool.
For many couples, the most appropriate use of a Community Property Trust is targeted. Highly appreciated assets may be placed into the trust while other assets remain outside of it. This approach allows the couple to capture the tax benefit where it matters most while maintaining flexibility in the broader estate plan.
In summary, a Kentucky Community Property Trust tends to be most useful for couples who:
- Own real estate that has appreciated significantly over many years
- Hold farmland or family property purchased decades earlier
- Have large taxable investment portfolios with low cost basis
- Own a closely held business that may be sold in the future
- Expect that the surviving spouse may sell assets after the first death
- Have a stable long term marriage with shared financial objectives
Medicaid and Long Term Care Planning Considerations
For many families, tax planning is only one part of the broader estate planning picture. Long term care planning can be just as important.
A Kentucky Community Property Trust is not designed as a Medicaid planning tool, and it should not be relied upon to protect assets from the cost of nursing home care.
Most Community Property Trusts are revocable during the spouses’ lifetimes. Because the spouses retain the ability to control and access the assets in the trust, those assets are generally considered available resources for purposes of Medicaid eligibility.
In practical terms, this means that transferring property into a Community Property Trust does not remove the asset from consideration if long term care benefits are later needed.
Couples who are concerned about potential nursing home costs should pursue different planning strategies. In some cases, that may involve irrevocable trusts or other structures designed specifically for long-term care planning. Those strategies operate under a different legal framework and typically involve restrictions on access to the transferred assets.
Another important consideration involves the surviving spouse. Even if one spouse requires long term care, the financial rules governing Medicaid eligibility treat married couples differently from single applicants. Certain protections exist for the spouse, including allowances designed to prevent the healthy spouse from becoming impoverished.
Because Community Property Trust assets remain accessible to the spouses, they generally remain part of the financial picture when evaluating eligibility for Kentucky Medicaid.
For this reason, couples who are considering a Community Property Trust should evaluate that decision alongside their long term care planning strategy. In some cases, the structures can coexist within a broader estate plan. In other situations, different planning priorities may lead to a different approach.
As with divorce and creditor considerations, the important point is that a Community Property Trust should be implemented as part of a coordinated plan rather than viewed in isolation.
Out of State Real Estate and Community Property Trusts
Many couples who consider a Kentucky Community Property Trust own property outside Kentucky. Investment accounts, businesses, and other financial assets located in other states can generally be transferred into the trust without significant complication.
Real estate located in another state raises a more nuanced issue.
A Kentucky Community Property Trust allows spouses to elect community property treatment under Kentucky law. The tax benefit of the structure depends on that characterization being respected for purposes of the federal step up in basis rules under Internal Revenue Code §1014.
When the property is located in Kentucky, the analysis is relatively straightforward because both the trust and the property are governed by Kentucky law. When the real estate is located in a state that does not recognize community property or community property trusts, the situation becomes less certain.
In those circumstances, the trust is attempting to apply Kentucky community property treatment to real estate located in a jurisdiction that may not recognize that classification. Although federal tax law governs the step up in basis rules, the characterization of the property as community property is a necessary element of the analysis. If that characterization were challenged, the full basis adjustment might not be available.
Because of this uncertainty, practitioners often approach out of state real estate conservatively when implementing a Community Property Trust.
One commonly used strategy is to hold the real estate through a limited liability company formed in the state where the property is located. The real estate is transferred into the LLC, and the ownership interests in the LLC are then transferred into the Community Property Trust.
By doing this, the trust is no longer holding real estate directly. Instead, it holds a business interest in the LLC. The asset inside the trust becomes the membership interest in the company rather than the underlying real estate. Structuring ownership in this manner would allow the trust to qualify for community property treatment and therefore receives a full step up in basis at the first spouse’s death.
Common Mistakes When Creating a Community Property Trust
A Kentucky Community Property Trust can be a powerful tax planning tool when implemented correctly. However, several common mistakes can prevent the trust from achieving the intended tax benefits.
Some of the most common issues include:
- Failing to properly fund the trust. Creating the trust document alone is not enough. The tax benefits apply only to assets that are actually transferred into the trust. If property remains titled in the spouses’ individual names, it will not receive community property treatment.
- Placing the wrong types of assets into the trust. Retirement accounts such as IRAs and qualified plans generally do not receive a step-up in basis at death because they are subject to income tax rather than capital gains tax. Transferring those assets into a Community Property Trust usually provides no tax advantage.
- Ignoring the marital property implications. Assets placed into a Community Property Trust are generally treated as community property between the spouses. In the event of divorce, those assets may be subject to equal division unless other agreements apply.
- Failing to coordinate the trust with the broader estate plan. A Community Property Trust should work alongside revocable trusts, beneficiary designations, and other estate planning tools. Without proper coordination, the overall plan may not function as intended.
- Overlooking issues involving out-of-state real estate. When property located in another state is transferred directly into a Community Property Trust, there may be uncertainty about whether community property treatment will be recognized. In some cases, practitioners address this by placing the property into a limited liability company and transferring the ownership interests into the trust.
Avoiding these mistakes helps ensure that a Community Property Trust is structured and funded in a way that achieves the intended tax benefits.
Frequently Asked Questions About Kentucky Community Property Trusts
What Is a Kentucky Community Property Trust?
A Kentucky Community Property Trust is a special type of trust authorized under Kentucky law that allows married couples to elect community property treatment for assets placed inside the trust.
Kentucky is not traditionally a community property state. However, the statute allows spouses to opt into community property treatment through a properly drafted trust agreement.
The primary benefit of this election appears when the first spouse dies. Assets held inside the trust receive a full step up in basis to fair market value under federal tax law, potentially eliminating or substantially limiting capital gains tax if that asset is sold.
Does Kentucky recognize Community Property?
Kentucky is not a community property state in the traditional sense.
Instead, Kentucky law allows married couples to voluntarily elect community property treatment through a Community Property Trust. Without that election, property owned by spouses generally follows Kentucky’s standard property ownership rules.
The Community Property Trust statute allows couples to access one of the primary tax benefits of community property states while still living in Kentucky.
What is the main benefit of a Community Property Trust?
The primary benefit is the ability to obtain a full step up in basis for trust assets when the first spouse dies.
Without this structure, jointly owned marital property in Kentucky receives only a partial step up in basis at the first death. This means that a significant portion of the appreciation may still be subject to capital gains tax if the surviving spouse later sells the asset.
A Community Property Trust can eliminate that remaining built in gain by allowing the entire asset to reset to its current market value.
For couples who own highly appreciated real estate, investment portfolios, farmland, or businesses, this can produce substantial tax savings.
Does a Kentucky Community Property Trust avoid probate?
Yes, a Community Property Trust can be structured to avoid probate if assets are properly transferred into the trust and the trust functions as the primary estate planning vehicle.
Does a Community Property Trust provide asset protection?
No.
A Community Property Trust is typically revocable during the spouses’ lifetimes. Because the spouses retain control of the assets, the trust generally does not shield property from creditor claims.
If asset protection is a primary concern, other planning strategies may be more appropriate. A Community Property Trust should not be relied upon as a creditor protection structure.
Can a Community Property Trust affect property division in divorce?
Yes, it can.
Assets placed into a Community Property Trust are generally treated as community property between the spouses under Kentucky law. If the spouses later divorce, the statute provides that the community property is typically divided equally unless a different agreement applies.
Because of this feature, couples should consider the marital property implications before transferring substantial assets into the trust.
What types of assets work best in a Community Property Trust?
The structure tends to be most beneficial for assets that have appreciated significantly over time.
Common examples include:
- Rental real estate
- Farmland or family land
- Commercial property
- Taxable investment portfolios
- Closely held businesses
Assets that do not generate capital gains, such as retirement accounts, generally do not receive the same benefit from this structure.
Is a Community Property Trust right for every couple?
No.
A Community Property Trust is a specialized planning tool. It can be extremely valuable in the right circumstances, particularly when a couple owns highly appreciated assets.
However, it may provide limited benefit for couples whose assets have little appreciation or whose wealth is primarily held in retirement accounts.
The decision should always be made in the context of the couple’s full estate plan, including tax planning, creditor considerations, marital property issues, and long term care planning.
Can an existing revocable trust be converted into a Community Property Trust?
In many cases, yes.
An existing revocable trust can often be amended or restated to incorporate the provisions required for a Kentucky Community Property Trust. To qualify under Kentucky law, the trust must expressly state that it is intended to be a Community Property Trust and must satisfy the requirements set forth in Kentucky Revised Statutes §386.620–386.624.
In addition, both spouses must agree to the election, and the trust must have a qualified trustee as required by the statute.
Even if the trust document is amended, the planning does not end there. Assets must still be properly transferred or retitled into the trust for community property treatment to apply. Without proper funding, the trust will not achieve the intended tax result.
For couples who already have a revocable living trust, converting the existing plan into a Community Property Trust is often a straightforward process, but it should be done carefully to ensure the statutory requirements are satisfied and the trust continues to work with the rest of the estate plan.
Can a Kentucky Community Property Trust hold real estate located in another state?
Yes, a Kentucky Community Property Trust can hold real estate located outside Kentucky. However, additional considerations arise when the property is located in a state that does not recognize community property. Typically, using an LLC to hold out of state property would be the best course of action, but it usually depends on the individual circumstances. Couples who own real estate in multiple states should review those holdings carefully before transferring property into a Community Property Trust.
Kentucky Community Property Trust Attorneys
The Kentucky Community Property Trust is a relatively new planning tool in Kentucky that can produce significant tax benefits in the right circumstances. For married couples who own highly appreciated assets, the ability to obtain a full step up in basis at the first spouse’s death can eliminate substantial capital gains exposure and preserve more wealth for the surviving spouse and the next generation.
At the same time, a Community Property Trust is not a universal solution. The structure affects how property is characterized between spouses and may have implications for divorce, creditor exposure, and long term care planning. In addition, special considerations can arise when assets are located outside Kentucky or when certain types of property are involved.
For these reasons, the decision to create a Community Property Trust should be made as part of a coordinated estate planning strategy rather than viewed in isolation. When implemented thoughtfully and funded properly, it can be a powerful tool for couples who hold long term appreciated assets such as real estate, investment portfolios, farmland, or closely held businesses.
Couples who are evaluating whether a Kentucky Community Property Trust may be appropriate for their situation should review their assets, tax exposure, and broader estate plan with experienced counsel before implementing the structure. Careful planning can help ensure that the trust is drafted and funded in a way that achieves the intended tax and estate planning objectives.
If you need assistance establishing a Kentucky Community Property Trust, contact the team at Crow Estate Planning and Probate today to schedule an initial consultation.
About the Author
Jonathon Garnett is an attorney at Crow Estate Planning and Probate, PLC. After serving as the firm’s summer clerk during his collegiate career, he joined our team of attorneys to lead our Hopkinsville office, assisting clients in the areas of estate planning, probate, conservatorships, and guardianships. He graduated with a Bachelor of Science in Economics from Western Kentucky University, then later earned his Juris Doctorate from the J. David Rosenberg College of Law at the University of Kentucky. Born and raised in Hopkinsville, he’s proud to serve the community his family has called home for many generations. Learn More.
Licensed in Kentucky