Florida Community Property Trusts: Strategic Planning for Married Couples

Where you establish your trust matters

Florida continues to strengthen its position as one of the most trust-friendly states in the country. With favorable tax laws, modern statutes, and strong privacy protections, Florida offers families a forward-thinking environment for wealth planning.

The state’s adoption of the Florida Community Property Trust Act (CPTA) in 2021 reflects that progress, introducing a new estate and income tax planning tool for married couples. A Florida Community Property Trust (FLCPT) allows spouses to elect community property treatment for assets held in trust, offering potential tax advantages and flexibility that were not previously available in Florida, a common law property state.

What is community property and why it matters

Community property is a legal framework that treats both spouses as equal owners of assets acquired during marriage. In community property states, this often results in favorable tax treatment, including a full step-up in basis at the first spouse’s death.

Through the CPTA, Florida couples can now opt into this treatment by placing assets into a properly structured FLCPT.

Legal requirements to establish an FLCPT

To create a valid Florida Community Property Trust:

• The trust must expressly declare that it is a Florida Community Property Trust.
• It must be signed by both spouses with the formalities required for trust execution.
• It must have at least one qualified trustee—a Florida resident or a company authorized to act as trustee in Florida.
• It must include the statutory warning in capital letters near the beginning of the trust agreement.

Key benefits of a Florida Community Property Trust

1. Full step-up in basis at first death

Under traditional common law property rules, only the decedent’s half of jointly owned property receives a step-up in basis. A properly structured FLCPT may allow the entire value of the trust assets to receive a step-up at the first spouse’s death, potentially eliminating capital gains tax on appreciated assets.

Example 1: Appreciated Florida home
A Florida couple purchased their primary residence years ago for $2 million. Today, the home is worth $5 million. If the property were held in joint ownership, only the deceased spouse’s half ($2.5 million) would receive a step-up in basis, leaving the survivor with $1.5 million of built-in gain if the home were sold. By holding the home in an FLCPT, the entire property could receive a step-up to $5 million at the first spouse’s death, potentially eliminating all capital gains tax on a later sale.

Example 2: Appreciated investment portfolio
A couple invested $1 million in a diversified portfolio years ago. The portfolio has grown to $3 million. In a typical joint ownership arrangement, the surviving spouse would receive only a partial step-up, still facing tax on roughly $1 million of appreciation. With a properly structured FLCPT, the surviving spouse could receive a full step-up to $3 million, avoiding capital gains tax if the assets were sold and resetting the basis for future growth.

2. Planning flexibility and control

An FLCPT allows couples to define exactly how ownership, management, and decision-making will work during their lifetimes and after one spouse’s death. Unlike many traditional joint trusts, an FLCPT can be tailored so each spouse retains control over their share of the assets even if the trust becomes partially irrevocable when one spouse passes away.

This design gives families the best of both worlds: structure and protection for the deceased spouse’s estate, and flexibility for the survivor to adapt as life evolves. The surviving spouse can sell, reinvest, or amend terms relating to their share of the trust without disturbing the deceased spouse’s estate plan.

Example: A couple transfers their jointly owned vacation home into an FLCPT. The trust specifies that each spouse has equal management rights. After one spouse passes away, the survivor decides to sell the home and invest in a rental property. Because the FLCPT allows each spouse to control their own share, the surviving spouse can make that change freely while the deceased spouse’s share remains protected for heirs.

This flexibility allows couples to maintain structure in their estate plan without limiting the surviving spouse’s ability to manage or adapt their assets over time.

3. Creditor protection considerations

The CPTA allows a creditor to satisfy a debt of one spouse from that spouse’s one-half share of the trust assets. This differs from Florida’s tenancy by the entirety protections, which shield jointly owned assets from the creditors of one spouse. Couples with potential liability exposure should carefully consider whether an FLCPT is appropriate.

Notably, Florida homestead property held in an FLCPT retains its traditional creditor protection.

Example: A married couple transfers their investment portfolio into an FLCPT. One spouse, a physician, faces potential malpractice exposure. Under the CPTA, a creditor could reach only that spouse’s one-half share of trust assets, whereas tenancy by the entirety ownership would have protected the entire account. However, because the couple’s Florida homestead is also in the FLCPT, it retains its full protection.

4. Estate planning efficiency

An FLCPT can simplify estate planning by consolidating assets into one coordinated structure. This reduces administrative burden and enables more efficient management of both spouses’ estates.

Example: A married couple with multiple accounts and properties establishes an FLCPT. HighMark Trust, serving as corporate trustee, works with their legal and financial advisors to manage recordkeeping, reporting, and compliance. The couple benefits from centralized oversight and simplified coordination.

Conclusion

The Florida Community Property Trust offers married couples a powerful way to enhance both estate and income tax planning. With proper drafting and professional administration, it can deliver a full basis step-up, planning flexibility, and potential creditor protection.

As part of a comprehensive wealth strategy, an FLCPT helps families preserve and transfer wealth efficiently while maintaining control and clarity. For advisors and estate planners, understanding the nuances of this tool is key to unlocking its full value for clients.

About HighMark Trust

HighMark Trust is a fully independent, Florida-chartered trust company focused exclusively on administrative trustee services. Our fiduciary professionals bring deep expertise, disciplined judgment, and an unwavering commitment to complete alignment with clients and their advisors. With a boutique structure and a service model built on responsiveness, transparency, and long-term partnership, we deliver a higher standard of trust administration for families across generations.