Community property can have important benefits for the purposes of keeping property in a family. Nine states recognize community property and two states allow for a type of trust that grants them.
In the popular imagination, the term "community property" is often viewed negatively. This is because the context in which most people are probably familiar with the term, comes from movies and television.
Only nine states have community property laws, which is a special way that married spouses hold title to property they received through joint effort.
California is one of those states. Consequently, with so many television shows and movies produced there, community property is commonly mentioned in the context of a divorcing couple fighting over property.
However, there are capital gains tax advantages to community property and everyone can take advantage of them by creating a community property trust, as Wealth Management recently explained in "What Is Community Property and What Are Community Property Trusts?"
The big advantage of a community property trust is that assets held in such a trust, can receive a double step-up in basis for capital gains tax purposes. When one spouse passes away and the other inherits the assets, all of the assets receive a full step-up in basis. This often results in little or no capital gains tax, when such assets are later sold.
Only two states, Alaska and Tennessee, allow community property trusts, but you are not required to live in those states to create trusts there.
However, these trusts will not be best for everyone, so consult with an estate planning attorney.
Reference: Wealth Management (April 18, 2017) "What Is Community Property and What Are Community Property Trusts?"
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