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St. Thomas Law Review

Massiel Alonso

First Page

181

Document Type

Comment

Abstract

Florida is a migratory state, famous for its tropical climate and its generous tax laws. Now, Florida is joining Alaska, Tennessee, South Dakota, and Kentucky in offering a Community Property Trust for marital property. One of the benefits of a Community Property Trust Act (“CPTA”) is that when a spouse owning community property dies, the basis of both the deceased spouse’s and the surviving spouse’s (50%) shares of the property are adjusted to the property’s fair market value at the date of the decedent spouse’s death. This sort of tax adjustment is referred to as a “double step-up in basis,” and as long as the community property has appreciated, it results in a tax benefit for the beneficiary of the property. An analysis of Florida’s CPTA reveals that it is misleading in several ways. First, it gives estate planners the option to make the trust irrevocable; however, if a married couple were to place their homestead property in an irrevocable trust, they would lose their homestead exemption which affects the way the property is taxed. Second, if one spouse dies and the surviving spouse is a noncitizen of the United States, and the decedent left their property to the surviving non-citizen spouse, that spouse is now subject to gift taxation rates as applicable to non-citizens under the Internal Revenue Services (“IRS”) code. Lastly, this new legislation does not clearly state whether the assets used to fund the trust would be classified for tax-exempt purposes. This Comment will analyze the Florida Community Property Trust Act by closely evaluating the statute itself. Part II will offer background information on the CPTA, including definitions of essential terms. Part III, section A, will analyze the risk of providing an irrevocable trust as an option for homestead property and offer a novel solution that proposes an amendment to the CPTA to eliminate irrevocable trusts. Part III, section B, will analyze the issue of devising property to a non-citizen spouse for tax purposes and propose a tax exemption for non-citizen spouses with a community property trust. Part III, section C, will analyze the uncertainty regarding how the IRS will treat community property trusts settled in a non-community state and will recommend clarity in the law as it refers to this issue. Part IV will state the novel solutions proposed for each critique. Lastly, part V will summarize the analysis done throughout the comment and conclude.

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