How a Florida Community Property Trust Can Spare a Surviving Spouse a Capital Gains Tax Bill
Imagine a married couple who bought investment real estate in the 1990s for $200,000. Today it is worth $900,000. That is a success worth celebrating, but there is a tax trap tucked inside it, and it springs when one spouse dies and the survivor goes to sell. Learn how you or your spouse can minimize Capital Gains Tax with a Florida Community Property Trust.
Florida now offers a tool that can take a large bite out of that tax bill, and most couples have never heard of it. It is called a community property trust.
Start with “basis,” because everything turns on it
Basis is essentially a couple's investment in an asset for tax purposes. It usually begins with the purchase price, but it is more than what was paid; money spent on major improvements adds to it, and for rental or investment property, depreciation claimed over the years subtracts from it. The number that matters at sale is this adjusted basis, not simply the original price.
When you sell an asset, you owe capital gains tax on the difference between the sale price and that adjusted basis. The wider the gap, the larger the tax.
A generous exception applies when someone dies. The assets they leave behind get a “step-up” in basis to their fair market value as of the date of death, and the built-in gain from years of appreciation is effectively wiped clean for the heirs. It is one of the most valuable rules in the tax code, and much good estate planning is about capturing it.
Where Florida couples lose half the benefit
Here is the catch. Florida is a common-law property state, not a community property state. When the first spouse dies, only that spouse's half of a jointly owned asset gets the step-up. The survivor's half keeps its old, low basis. So, if that $900,000 property is owned jointly, only half of it resets. If you sell it a year later, it still triggers capital gains tax on a big slice of the appreciation.
The nine community property states handle it differently. There, when the first spouse dies, 100% of the community property gets stepped up, not just the decedent's half. That “double step-up” can wipe out decades of gain in a single stroke. For a long time, the only way to get it was to live in one of those states.
What a Florida community property trust changes
The Florida Community Property Trust Act lets a married couple elect community property treatment for the specific assets they choose to place in a qualifying trust. Set up correctly, those assets can receive the full double step-up under federal tax law when the first spouse dies — the community property result, without leaving Florida.
The numbers make the point. Take that property again: a basis of $200,000, a value of $900,000, sold shortly after the first spouse passes.
- Owned jointly, the ordinary Florida way: only half steps up, leaving a taxable gain of about $350,000. Today’s federal long-term rates of roughly 20% to 23.8% mean that tax of somewhere between $70,000 and $83,000. Florida has no state income or capital gains tax, so that federal figure is the whole bill.
- Owned inside a community property trust: both halves step up to $900,000, the built-in gain is gone, and the tax on that sale is zero.
Same asset, same sale, but tens of thousands of dollars more stays in the family. The bigger the appreciation, the bigger the swing, which is why this matters most for long-held real estate and stock portfolios that have grown for decades.
What it takes to set one up
A community property trust isn't something a couple can download and sign. To be valid, it must meet specific requirements: only married couples can create one, and both spouses must sign. The document must state plainly that it is a community property trust and include the statutory notice. At least one trustee must be a Florida resident or an authorized Florida trust company, and the couple must re-title the assets into the trust. Miss a step, and the couple may not get the treatment they were counting on, which is why this is coordinated work between the estate plan and the couple's tax planning.
The honest trade-offs
The upside is only half the picture. Two things deserve real thought before a couple commits.
First, creditor protection. Assets a Florida couple holds as tenants by the entirety enjoy strong protection from a creditor of just one spouse. Moving those assets into a community property trust generally gives up that protection. For some couples, the tax savings are clearly worth it. For others, particularly in high-liability situations, they aren't.
Second, the IRS hasn't formally blessed this. The double step-up rests on a sound reading of the tax code and on how the IRS has treated community property before, but the Service hasn't issued guidance specifically confirming it for these opt-in trusts. The Florida Bar and ABA tax sections asked for that guidance in 2025, and the IRS declined to provide it while noting the issue is under active review. The candid takeaway: this is a well-supported strategy, not a guarantee. What softens the risk is that the downside is limited — if the IRS ever disallowed the step-up, a couple would mainly be out the cost of creating the trust, not the value of their assets.
Is it the right move?
A community property trust fits married Florida couples who own highly appreciated assets, intend to hold them until the first death, and value income-tax savings more than creditor protection on those assets. It is a poor fit for plenty of other people. The only way to know which group a couple falls into is to look at the actual assets, the basis in them, and what the family is trying to accomplish.
Questions couples ask most often
Do they have to move to a community property state?
No. That is the whole point of the Florida law. A properly drafted Florida community property trust lets a couple elect community property treatment for the assets inside it while they live in Florida.
What assets make the most sense to put in one?
The ones with a large built-in gain: real estate held for years or a portfolio that has appreciated well beyond its basis. Recently bought assets, or ones that haven't gained much, offer little benefit.
Does it protect assets from creditors?
Usually the opposite. It typically trades away the tenancy-by-the-entirety protection that jointly owned Florida property enjoys, which is one of the main reasons it isn't right for everyone. That said, Florida Homestead property that meets the Florida constitutional definition already receives generous asset-protection advantages.
Is the double step-up guaranteed?
No. It is grounded in the statute and in established tax principles, but the IRS hasn't issued guidance formally confirming it for opt-in trusts. It is a strong position with limited downside if it were ever challenged.
Worth a conversation before selling
Couples who own assets that have grown significantly in value should weigh their options before a sale, and certainly before the first spouse passes away. Beacon Legacy Law™ helps people preserve and protect their legacy, and part of that is keeping as much of it as possible in the family's hands. Schedule a Complimentary Discovery Call or call (772) 324-9050. For a starting point, the firm's free Quick Guide to Trusts is a helpful read.
