Is Tennessee a Community Property State for Estate Planning?
Tennessee is NOT a Community Property State
Community property states such as California and Texas, permit assets to receive a step-up in basis to the current fair market value (FMV) at the death of the first spouse to die regardless of which spouse owns the assets.
Tennessee is a separate property state. This means that only the separate assets of the deceased spouse (titled in his or her name), or 1/2 of any jointly-owned property, are entitled to a step-up in basis to the current FMV at the death of the first spouse to die.
Tennessee Community Property Act of 2010
But wait—this Act allows for ownership of assets in a Tennessee Community Property Trust. Although this type of ownership of assets between a husband and wife is not always beneficial, it can provide a significant advantage in the right circumstances, especially for property with a very low tax basis.Provided the Trust meets certain requirements, the property owned by the Trust will be treated as community property.
The most significant advantage of this type of ownership is that both spouses’ interests receive a step-up in basis up to the FMV of the property upon the death of the first spouse. In contrast, if the property was owned jointly or as tenants by the entireties, only 1/2 of the property would receive a step-up in basis at the first death. Thus, community property ownership can significantly reduce or even eliminate capital gains upon the death of a spouse.
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