Understanding TN Community Property Trusts
We are here to help you understand TN Community Property Trusts (CPTs). These are valuable estate planning tools offering unique benefits for married couples in Tennessee. While not as common as traditional revocable living trusts, CPTs can manage and protect assets while taking advantage of Tennessee’s community property laws. Below, we’ll explain the critical aspects of Tennessee Community Property Trusts and why they may be advantageous for couples.
What is a Community Property Trust?
A Community Property Trust is a legal arrangement established by married couples who wish to classify certain property as community property. In Tennessee, community property refers to assets acquired during the marriage, excluding those obtained by inheritance or gift. By creating a CPT, spouses can convert separate property into community property, potentially reducing their tax liability and simplifying estate planning.
Benefits of Tennessee Community Property Trusts
1. Equal Ownership: CPTs ensure that each spouse has an equal ownership interest in the assets held within the trust. This can simplify property management and decision-making during the marriage.
2. Step-Up in Basis: Upon the death of one spouse, the assets in the CPT receive a “step-up” in basis to their fair market value. This means the surviving spouse can sell the assets with little or no capital gains tax liability. Thus making this a significant advantage over other types of trusts.
3. Creditor Protection: Assets held in a CPT may enjoy increased protection from creditors. Moreover, they are treated as community property and generally not subject to individual creditor claims.
4. Avoiding Probate: Like traditional revocable living trusts, CPTs can help assets pass to beneficiaries outside of probate. Therefore, saving time and expenses.
Creating & Understanding Tennessee Community Property Trust
To establish a CPT, spouses typically should work with an attorney experienced in estate planning and Tennessee community property laws. The process typically involves:
1. Drafting the Trust Agreement: The Trust Agreement outlines the terms of the CPT, including which assets are to be classified as community property.
2. Transferring Assets: Once the CPT is established, the spouses must transfer their chosen assets into the trust. And this may involve changing the titles on property deeds or re-registering financial accounts.
3. Maintaining Separate Property: It’s important to note that not all assets need to be included in the CPT. Each spouse can maintain separate property, and only specific assets are designated as community property within the trust.
4. Regular Review: Estate plans should be reviewed periodically to ensure they align with your current financial situation and goals. Adjustments can be made as needed.
Summary. Understanding TN Community Property Trusts
In conclusion, TN Community Property Trusts offer unique advantages for married couples looking to manage, protect, and pass on their assets. By taking advantage of the state’s community property laws, spouses can simplify their estate planning and potentially reduce tax liabilities.
To learn more about CPTs, contact us at 615-784-4800 or visit kane-law.com for more information.