In 2010 Tennessee enacted the Tennessee Community Property Trust Act of 2010. Under this law married couples may convert individually or jointly-owned property to community property by transferring it to a Tennessee Community Property Trust.
The primary benefit of owning community property is that upon the first spouse’s death, both spouses’ ownership in the community property receives a step up in basis to the fair market value of the property. If the surviving spouse subsequently sells the community property there are no capital gains.
Other potential benefits of a Tennessee Community Property Trust include the ability to easily equalize asset ownership between spouses and to receive valuation discounts for fractional ownership of real property or closely-held business interests.
In determining whether a Tennessee Community Property Trust is right for you several factors should be taken into careful consideration. First, does a Tennessee Community Property Trust afford me and my spouse adequate creditor protection? Second, if divorce or legal separation occurs, how will the assets in a Tennessee Community Property Trust be distributed? Each family situation is unique so make sure your Nashville estate-planning attorney is both familiar with Tennessee’s Community Property Trust Act of 2010 and able to communicate with you the potential consequences – both positive and negative – associated with converting your property to community property.