Community Property Trust (CPT) Services

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

Phillip Traylor

All the folks at Crow Estate Planning are super helpful and ready to assist in any way they can. I felt very comfortable and appreciated the knowledge and wisdom they provided in making important decisions.

Olivia

Wessley was great. He answered all of our questions and took great care of 2 generations in my family. The turn around for completion was quicker than I thought. When we have needs in the future we will return to Crowe estate planning for assistance.

Raymond Stevens

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RoadhogRNA

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Chelsey Brooke Cole

Excellent service! Very nice, professional, and thorough. Highly recommend!

Greg Anderson

My wife and I needed to get our will in order. Kyle Shannon and his team were very professional and knowledgeable about our requirements. Our needs were met in a timely manner. We highly recommend this office.

Laura Shortt

John took time during our consultation to answer all our questions and provide us with information to help us make the best decisions. His office was responsive and flexible scheduling and rescheduling appointments for us and ensuring we had all we need to move from step to step.

Sean Grimes

Mr.Crow is a very trustworthy attorney that you can count on to gives you great advise, and direction to make the best decision for you

C.Lanette Brant

Very attentive. Made sure to clearly understand my needs and expectations for setting up my trust.

Barbie Lynch

Mr. Shannon, there are no words to express my gratitude and appreciation for your professionalism, knowledge of law, and always having a direct and concise answer to any and all of my questions. You and your team did not fail me. You are truly a credit to your profession. Your mannerisms were beyond expectations! On a side notethe office building added a tint of charm to the time period. I was truly impressed! Thank you so much for your assistance and I wish you the best as you move forward through your law career.

Community Property Trust (CPTs)