Community property trusts can save your clients tens of thousands of dollars in capital gains taxes, and that is just one of their many benefits. This lesser-known strategy is not necessarily the best fit for all couples either because of their assets or state of residence. However, for households you work with that can make the most of them, it is a planning tools that could have a significant impact on keeping more of the value of their estates in the family.

These trusts offer a huge benefit to couples who take advantage of them. There's also a lot to gain for their financial advisors. Thanks to the double step-up for property held in this type of trust, your clients will retain a significant amount of wealth that would otherwise go to the IRS because of the capital gains tax. So it is a solution that provides better cash flow for your clients and more assets under management for you: a win-win for all parties.

What is community property, and what is a community property trust?

Before we get into the details, let's start with two definitions:

• Community property: Assets a married couple acquires by joint effort during marriage if they live in one of the nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
• Community property trust: A special type of joint revocable trust designed for couples who own low-basis assets, enabling them to take advantage of a double step-up. Tennessee and Alaska are the two places you can form these trusts, even for clients who do not live in those states.

Note: Differentiating between community property states and states in which community property trusts can be created can be a bit tricky. To put it simply, assets acquired jointly during marriage within those nine states are automatically considered community property. However, in Tennessee and Alaska, married couples can create a special trust called a community property trust. This trust effectively opts your clients into the same benefits that couples automatically enjoy in those states, at least for assets transferred into these trusts.