Hey everyone, I’m Stuart Green, the founding and managing attorney of Stuart Green Law. We are an estates, trust, tax, and asset protection law firm focused on serving high-net-worth clients. Today, we’re going to talk about Community Property Trust planning, which is something almost exclusive to South Dakota.
If you’ve watched any of my other videos, you know a little bit about me and my background. You know that we’ve carved out a niche helping clients everywhere with South Dakota trust planning. One of the reasons for that is because South Dakota is recognized by practitioners, professional organizations, and publications as the premier trust jurisdiction in the United States and one of the best in the world.
So, let’s dive into community property. There are only a handful of community property states in the country, and this is a property law issue. In these states, when the first spouse passes away, the surviving spouse gets a full step-up in basis on any of the community property. In most states that have joint property rules, spouses will hold property jointly together. When the first spouse passes away, there’s only a 50% step-up in basis on the deceased spouse’s share of the jointly held property. This means half of those assets—those owned by the surviving spouse—don’t receive a step-up in basis.
However, in community property states, when the first spouse dies, there’s a full step-up in basis on the entire property, which provides significant tax savings to the surviving spouse, as well as to any subsequent generations who may inherit those assets. If the surviving spouse decides to sell those assets, there’s no capital gains tax on the appreciation that occurred before the first spouse’s death because of that step-up in basis.
South Dakota has done something very unique here. Alaska has also implemented this, but their trust laws aren’t as strong as South Dakota’s. The other benefits of South Dakota trust planning, coupled with this community property statute, make South Dakota the ideal place for this kind of planning. For those who are not located in a community property state, which is most people, South Dakota has made it possible for non-residents to opt into South Dakota’s community property benefits by setting up a Community Property Trust.
There are a few different ways this could work out, but the key takeaway is that this provides a huge federal income tax savings to clients who don’t live in South Dakota or a community property state. If you have questions about this, feel free to reach out. This is a strategy that not many people are taking advantage of because it’s exclusive to only two states, with South Dakota being the superior option.
If you live in a state that doesn’t have community property laws, or if you’re a financial advisor or some type of advisor to clients, this is a huge opportunity for your clients to keep more of their assets and money, allowing them to invest and grow their wealth instead of turning it over to the government.
If you have questions, reach out, and let’s have a conversation. If you like this video, hit like, and don’t forget to subscribe to our YouTube channel. We release a lot of content like this, diving into more technical and advanced planning strategies. You’ll see a lot of videos out there that talk about general tax planning strategies, but these aren’t your boilerplate strategies—they’re more nuanced and focused. So, if you want to hear more content like this, subscribe to our channel. Thank you!
