Overbey bill sets up optimal community property trust to compete for investment in trusts

For Immediate Release                    contact:  Darlene Schlicher 741-6336

 (NASHVILLE, TN), March 10, 2010 — Legislation was approved by the full Senate this week continuing efforts to make Tennessee a desirable state to establish a trust.  The bill, Senate Bill 3529, allows married couples to create and transfer property to a community property trust to help Tennessee create an optional community property system. 

“This legislation continues our efforts to improve our trust laws to make Tennessee more competitive as a desirable location for trust investments,” said Senator Overbey.  “The more trusts we have in Tennessee, the more opportunities we have for investment.  This is important as we continue to make our state more competitive.”

There are two types of benefits which a community property trust would provide couples who “elect in” to the system partially or completely, including a significant tax advantage. At the death of the first spouse to die, both spouse’s interests in the community property receive a full basis adjustment.  As a result, there will be no capital gain payable if the property is sold for its value at the date of the first spouse’s death. Further, the increased basis will allow for increased depreciation deductions for business and investment depreciable property.  In a separate property state, if the property was jointly owned between husband and wife, only one-half of the property would receive such an adjustment in basis.

Secondly, community property is a property ownership system which generally provides for equal ownership of property by husband and wife. This general involves a sharing in the appreciation and income from the property. Likewise, there is often an equal sharing in the management of the property. This bill would provide an option for couples who find this equality and sharing arrangement the preferred form of property ownership.

“This system provides more flexibility in cases where a spouse dies and it may be necessary for the surviving spouse to sell some of the assets, added Overbey.  “Assets may need to be sold for the survivor to continue to meet the family’s needs.  This can help reduce or eliminate capital gain taxes if a full basis adjustment has been obtained.”

The community property trust can be added to existing estate planning, including revocable trusts or sophisticated wills.  If a couple had not yet accomplished estate planning, then a new joint revocable trust could be formed that would hold their community property, the husband’s separate property, and the wife’s separate property.  Residents outside Tennessee could form a trust in the state as long as they obtain an in-state qualified trustee.

Last month Overbey won passage of a new law to improve Tennessee’s Uniform Principal and Income Act, the Uniform Trust Code, and the Investment Services Act by adding a number of statues to upgrade to improve the state’s trust laws.  It also creates a new type of trust in Tennessee called the unitrust.  The bill now goes to the governor for his signature. 

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