Are You Familiar With Community Property Trusts?

An essential part of Estate Planning for married couples in California involving understanding basis.


  • Basis: Typically, this is what you paid for an asset, although it can sometimes be different for property that was given to you as a gift, rental property, or small business interests such as S Corporations or partnerships. Regardless of how you determine basis, it is important to know because it is used to determine gain or loss for income tax purposes.
  • Stepped-up basis: Assets are given a new basis when transferred by inheritance (through a will or trust) and are revalued as of the date of the owner’s death. If an asset has appreciated above its basis (what the original owner paid for it), the new basis is called a stepped-up basis. A stepped-up basis essentially wipes out the capital gains bill that would otherwise be owed and can save a considerable amount of capital gains tax when an asset is sold by the new owner. For jointly owned property, most married couples receive a step-up in basis for one-half of the value of the property.
  • Double step-up: For community property, the entire value of the property gets a basis adjustment step-up when one of the spouses dies, rather than only one-half of the property; hence the term double step-up. This double step-up allows a surviving spouse to reduce or even potentially eliminate his or her capital gains tax liability.

Community property trusts are one strategy, but they necessarily fit everyone’s circumstances.  It’s appropriate for married clients that have low basis assets that they’re comfortable holding onto until one of them dies. There are lots of other strategies to talk about, too. Call us to discuss your goals, and we’ll work together to keep the wealth you’ve worked so hard for within your family for generations to come.