How a Tennessee Community Property Trust Works

We are here to help you understand how a Tennessee Community Property Trust (TCPT) works. A TCPT follows a specific legal process defined by the Tennessee Community Property Trust Act (Tenn. Code Ann. §§ 35-17-101 et seq.). While the concept is straightforward, the execution requires careful attention to statutory requirements. Understanding each step helps married couples decide whether this strategy fits their estate planning goals and prepares them for what to expect when working with an attorney.

Step 1: Creating the Joint Revocable Trust

Both spouses must work with an experienced estate planning attorney to draft a joint revocable trust that includes the specific language required by the Tennessee Community Property Trust Act. The document must contain a prominent disclaimer, typically written in all capital letters, explaining the effects of community property treatment in the event of divorce.

Step 2: Funding the Trust

After both spouses sign the trust, the couple must transfer assets into it by changing titles. Only assets that are properly titled in the name of the trust receive the community property election, so this step is critical to securing the intended tax benefits.

Common assets transferred into a TCPT include:

1. Real Estate: Real estate may be transferred into the trust through a new deed.

2. Bank and Investment Accounts: Financial accounts may be retitled in the name of the trust when appropriate.

3. Business Interests: Business interests may be transferred subject to any transfer restrictions in governing documents or agreements.

4. Personal Property: Personal property may be listed in a schedule attached to the trust.

Some assets cannot be easily retitled or carry transfer restrictions that make them difficult to move into the trust. Those assets may need to remain outside the TCPT, and your attorney can help you identify the best approach for each item.

Step 3: Trustee Requirements During the Joint Lifetime

While both spouses are living, the trustee or co-trustees must meet one of two requirements. They must be either a Tennessee resident or a financial institution chartered in Tennessee.

This rule limits options compared to a standard revocable trust. However, one spouse may serve as trustee if they meet the residency requirement, which keeps the structure manageable for most couples. Moreover, working with a Tennessee-based financial institution is a practical alternative if neither spouse qualifies or prefers to have a neutral party serve in that role.

Step 4: What Happens When the First Spouse Dies

Upon the death of the first spouse, the surviving spouse continues to manage the trust assets according to the trust terms.

The most important tax event occurs at this point. Both halves of the community property receive a step-up in basis to fair market value. This double step-up is the primary benefit that sets a Tennessee Community Property Trust apart from a standard revocable trust and can result in significant capital gains tax savings for the surviving spouse.

Step 5: Administration After the First Death

The surviving spouse typically continues as trustee or appoints a successor. The surviving spouse retains full control over their own interest in the trust assets during their lifetime, which provides continued flexibility for managing the estate going forward.

Important Timing and Documentation Rules

The community property election must be made properly at the time assets are transferred into the trust. Furthermore, the trust must remain in compliance with all statutory requirements throughout its lifetime to preserve the intended tax benefits.

Couples should keep thorough records of asset transfers and trust amendments to ensure the TCPT remains effective over time.

Why Professional Drafting Is Essential

Small errors in language, titling, or trustee selection can invalidate the community property election entirely. Tennessee attorneys experienced with the Act understand the precise wording and procedures required to make the election effective. Additionally, they can help identify which assets belong in the trust and which are better left outside, ensuring the strategy works as intended for your specific situation.

Frequently Asked Questions About How TCPTs Work

Can one spouse create a Tennessee Community Property Trust alone?

No. Both spouses must participate in creating the joint trust and agree to the community property election. The TCPT is by definition a joint revocable trust, so both parties must be involved from the beginning.

What if we move out of Tennessee after creating the trust?

The trust was created under Tennessee law, and moving to another state may create conflicts with the laws of your new state. It is important to discuss portability concerns with your attorney before relocating to avoid unintended consequences.

Are there assets that should not go into a TCPT?

Yes. Assets with transfer restrictions, certain retirement accounts, and property you want to keep in tenancy by the entirety ownership may be better left outside the trust. Your attorney will review your full asset list and help you make the right call for each item.

How long does it take to set up a Tennessee Community Property Trust?

The process typically takes several weeks, depending on the complexity of your assets.

Does the double step-up in basis apply to all assets in the trust?

It applies to assets properly characterized as community property under the trust. Assets that remain separate property or that were not correctly funded into the trust may not receive the full benefit.

Can we make changes to the trust after it is created?

While both spouses are living, the trust remains revocable, so amendments are possible subject to the terms of the document.

Talk to Kane & Crowell About Your Estate Plan

A Tennessee Community Property Trust offers a clear, step-by-step path to meaningful tax savings, but the details matter. Kane & Crowell helps married couples in Wilson County, Smith County, Macon County, Trousdale County, Sumner County and the Nashville area determine whether a TCPT fits their overall estate plan. Schedule a consultation today to learn how a Tennessee Community Property Trust would work with your specific property and long-term goals.

This content is for educational purposes only and does not constitute legal, tax, or financial advice. The information is based on the Tennessee Community Property Trust Act as of 2026. Laws and interpretations can change. Always consult a qualified Tennessee estate planning attorney for advice specific to your circumstances.

To learn more about TCPTs, contact us at 615-784-4800 for more information.