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Florida Bar Journal

Understanding the New Florida Community Property Trust, Part II

Real Property, Probate and Trust Law

Death of a Spouse

A Florida Community Property Trust (FLCPT) is a joint trust that holds the assets of a married couple, and, while both spouses are alive, the assets generally may be used for their benefit. Upon the death of a spouse, even if the FLCPT is irrevocable, “the surviving spouse may amend a community property trust regarding the disposition of that spouse’s one-half share of the community property.”[1] F.S. §736.1507 provides that “[u]pon the death of a spouse, one-half of the aggregate value of the property held in a community property trust established by the settlor spouses reflects the share of the surviving spouse” and “[t]he other one-half of the value of that property reflects the share of the decedent spouse.[2] Unless the FLCPT agreement provides otherwise, the trustee has the power to divide the assets in any manner between the surviving spouse’s share and deceased spouse’s share, provided the division results in each spouse receiving equal aggregate value.[3] Once each spouse’s share is established, the surviving spouse is free to amend the FLCPT as it pertains to his or her share, and the deceased spouse’s share shall be administered in the manner provided for in the FLCPT.

Of significant importance is the default rule that allows the trustee to divide the assets upon the first spouse’s death. The surviving spouse serving as trustee in this situation could, especially without professional guidance, result in unintended consequences, such as an inequitable asset selection,[4] creditor exposure, elective share funding issues, failure to qualify for a full fair market value (FMV) basis adjustment,[5] or homestead devise restrictions. The FLCPT agreement can opt out of default treatment by including terms that address the division of assets upon a spouse’s death. Such terms could provide for a predetermined division of assets or a specific methodology for dividing the assets (such as minimizing taxes or avoiding non-exempt assets passing to a debtor spouse). An additional option is to delegate the authority to make the division to another party.[6] While selecting a person, group, or entity to make the division could result in the same concerns, the potential for negative consequences can be minimized by ensuring qualified professionals are involved with division of FLCPT assets.

Homestead: Devise

Careful consideration is always necessary when planning with homestead property due to Florida’s complex homestead rules.[7] Thus, homestead planning with an FLCPT is no different and should marshal the same attention and consideration. The planning limitations stem from Fla. Const. art. X, §4(c), which provides that “homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there be no minor child.” If homestead is impermissibly devised at death, then the homestead “shall descend in the same manner as other intestate property; but if the decedent is survived by a spouse and one or more descendants, the surviving spouse shall take a life estate in the homestead, with a vested remainder to the lineal descendants in being at the time of the decedent’s death per stirpes.”[8] Should a surviving spouse not desire a life estate, he or she may instead elect to take a one-half interest as a tenant in common with the remaining one-half divided among the deceased’s spouse’s descendants.[9]

The homestead devise limitation is always in play because an FLCPT may only be employed by both spouses. Provided there are no minor children, then as long as the FLCPT provides that all the assets pass outright to the surviving spouse (or stay in the FLCPT with the surviving spouse having absolute control), it does not run afoul of the devise restriction. If upon the death of the first spouse any portion of the homestead is directed to another beneficiary or to an irrevocable trust (including a trust for the surviving spouse), the attempted devise will fail.[10] This unintended consequence may be avoided by including homestead waiver language in a nuptial agreement (or in the FLCPT agreement, provided it complies with the nuptial agreement requirements), or, at the very minimum, using a deed that waives homestead rights when conveying the homestead to the FLCPT.[11]

Unfortunately, no nuptial agreement or deed prevents application of the devise restrictions when a spouse dies and is survived by a minor child. While F.S. §736.151 does address homestead property, it is silent on the treatment of homestead at death. Therefore, when a spouse is survived by a minor child, one might assume that upon the first spouse’s death, one-half of the homestead in the FLCPT will be deemed improperly devised.[12] Such treatment would, by default, cause the surviving spouse to receive a life interest in the deceased spouse’s one-half share with the remainder interest being owned by the deceased spouse’s descendants.[13]

Upon further analysis, this result appears to be avoidable. Fla. Const. art. X, §4(c) provides that “[t]he homestead shall not be subject to devise if the owner is survived by spouse or minor child.”[14] The term “devise” is defined in the Florida Probate Code to mean “a testamentary disposition of real or personal property”[15] and “includes a disposition by trust of that portion of the trust estate which, if titled in the name of the grantor of the trust, would be the grantor’s homestead.”[16] F.S. §736.1507 provides:

Upon the death of a spouse, one-half of the aggregate value of the property…reflects the share of the surviving spouse and is not subject to testamentary disposition by the decedent spouse” and “[t]he other one-half of the value of that property reflects the share of the decedent spouse and is subject to testamentary disposition.[17]

Thus, only assets included in the deceased spouse’s one-half share are subject to devise. If the homestead is not part of the deceased spouse’s one-half share, then it is “not subject to testamentary disposition by the decedent spouse” and avoids triggering any homestead devise restrictions because there is no actual devise of any interest of the homestead property. Therefore, the homestead limitations on devise may be avoided simply by preventing any interest in the homestead from being part of the deceased spouse’s one-half share.

The default rules under the act provide that the trustee must first allocate assets to the surviving spouse’s one-half share and such allocation need not be pro rata. After the trustee’s allocation to the surviving spouse, the remaining assets are subject to devise by the deceased spouse.[18] Therefore, if a minor child was living at the death of the first spouse, the trustee could opt to allocate all the homestead to the surviving spouse’s share to avoid an invalid homestead devise. This approach would result in no basis adjustment to the homestead property because less than one-half (actually none) would be included in the deceased spouse’s gross estate.[19] Spouses may alter the default rules by including specific provisions in the FLCPT addressing homestead and the division of assets upon the death of a spouse.[20] Alternatively, the homestead devise restrictions also may be avoided by using an irrevocable FLCPT[21] or waiting until neither spouse has any minor children before putting homestead into a FLCPT.

Homestead: Alienation

The Florida Constitution does not restrict the transferor spouse from transferring homestead while living, provided that the transferor spouse has the other spouse’s consent.[22] Therefore, spouses must keep in mind that regardless of how the homestead is owned, it will require both spouses participating in the deed transferring the homestead into the FLCPT.

Homestead: Taxation and Creditor Protection

The act explicitly provides for the continuation of the homestead tax exemption and creditor protection benefits for homestead property owned by the FLCPT.[23] Therefore, spouses may maintain their homestead tax exemption ($50,000), continue to benefit from the Florida Save Our Homes tax cap (which limits the increase in the assessed value of homestead for ad valorem tax purposes to the lesser of the year-to-year change in the Consumer Price Index or 3% increase per year), and keep safely in place Florida’s constitutional homestead creditor protection. Nonetheless, to the extent the homestead property exceeds the size limitations (one-half acre within a municipality or 160 acres if not), then that portion of the property will be exposed to the creditors of either spouse.[24] The creditor exposure would not traditionally impact a married couple that acquired homestead property in excess of the size limitations as tenants by the entirety (TBE) because, in Florida, TBE property is exempt from the creditors of only one spouse.[25]


The debt of one spouse may be satisfied from that “spouse’s one-half share of a community property trust” excluding protected homestead.[26] The act defines “community property trust” to mean a trust that complies with the act,[27] and pursuant to the act, “[a]ll property owned by a community property trust is community property.”[28] Unfortunately, the act does not provide a formal definition of “spouse’s one-half share” and does not provide explicit rules or guidance as to which of the FLCPT assets are exposed to the creditors. F.S. §736.1504(1) provides that when establishing a FLCPT, the settlor spouses may agree upon “[t]he rights and obligations,” “[t]he management and control,” and “[t]he disposition of the property transferred to the trust on dissolution, death, or the occurrence or nonoccurrence of another event, subject to §§736.1507 [death of a spouse] and 736.1508 [dissolution of marriage].” A creditor claim should be deemed to be the “occurrence…of another event” that does not involve the death of a spouse or divorce of spouses and any attempt to satisfy such claim would involve the potential “disposition of the [FLCPT] property.” Therefore, it appears that the FLCPT may contain provisions that specify the FLCPT assets or the process to select FLCPT assets that will determine the composition of the debtor “spouse’s one-half share.” This position is further supported by F.S. §736.1505(4), which provides that “[t]he right to manage and control property that is transferred to a [FLCPT] is determined by the terms of the trust agreement.”

Rather than leaving the FLCPT silent, it may be prudent to include provisions addressing the treatment of a creditor claim against a debtor spouse. The FLCPT could specify in advance which assets will make up each spouse’s one-half share in the event of a creditor claim, or the FLCPT could have language that requires the non-debtor spouse, an independent trustee/director, or some other party to determine the assets that comprise the debtor spouse’s one-half share. The latter approach would be consistent with how the act addresses the default distribution of FLCPT assets upon the death or divorce of spouses, when a trustee is charged with dividing the assets.[29]

Accepting the analysis that the FLCPT can determine the assets exposed to a spouse’s creditor, the question becomes: Which assets should make up the debtor spouse’s one-half interest? Fla. Const. art. X, §4, provides creditor protection for homestead and up to $1,000 worth of personal property. Additionally, F.S. Ch. 222 provides a list of statutorily protected assets for debtors. However, F.S. §736.1506 only maintains the protections in the foregoing constitutional provision.[30] Therefore, it appears that the statutory exemptions for property owned outright by a spouse may be lost when such statutorily protected assets are transferred into a FLCPT.[31]

Conceivably, the FLCPT assets selected to constitute the debtor spouse’s one-half share could include all the homestead property. Expanding further, spouses could opt to pay off any remaining amount due on the homestead’s mortgage debt so that the entire FMV of the homestead is counted towards satisfying the debtor spouse’s one-half of the FLCPT assets.[32] Ultimately, the debtor spouse’s one-half share will reflect one-half of the value of the FLCPT assets, but less than the full FMV will be available for a creditor. Since statutory exemptions may not protect assets in the FLCPT, it would be prudent to avoid including such assets in the debtor spouse’s one-half share. Instead, consideration should be given to including an interest in a multimember limited liability company (LLC) in the debtor spouse’s share. F.S. §605.0503 provides that if an LLC has more than one member, a “charging order is the sole and exclusive remedy by which a judgment creditor of a member. . . may satisfy a judgment” and the “remedy of foreclosure on a judgment debtor’s interest. . . is not available to a judgment creditor.” Moreover, if the debtor spouse’s one-half share includes a controlling interest in a multimember LLC, a control premium may apply, increasing the value of the LLC interest and thereby simultaneously decreasing the amount of other assets that need to be part of the debtor spouse’s one-half share and increasing the amount of assets in the non-debtor spouse’s one-half share.[33] This would further reduce the actual assets available to satisfy a creditor, giving the debtor spouse a much better position to negotiate settlement with the creditor.

Limited Liability Company: Charging Order Protection

As the name suggests, an LLC generally provides its members with “limited lability.”[34] The limited liability generally shields the members of the LLC from problems that arise from or through the entity, thus providing protection from what are called “inside creditors.” When a member of an LLC has a personal creditor (e.g., personal use motor vehicle accident liability), that creditor is called an “outside creditor” because the creditor can pursue nonexempt personal assets of the debtor member. In contrast, with a single-member LLC, the LLC’s underlying business and assets are more exposed to a member’s outside creditor’s reach.[35]

When there are two or more members of the LLC, an outside creditor is limited to the “exclusive remedy” of a “charging order against the transferable interest of the member.”[36] A charging order “requires an LLC to pay over to the judgment creditor any distribution that would otherwise be paid to the judgment debtor.”[37] The members of the LLC generally control when or if a distribution is made, inhibiting the creditor’s ability to collect. This is especially true for a multi-member LLC that owns passive investments when distributions are uncommon and may not occur until the investments are sold.

Whether charging order protection will be available depends on the determination of the number of “members” of the LLC. The Florida Revised Limited Liability Company Act (Revised LLC Act) defines “member” as someone who has not dissociated from the LLC and is a member pursuant to F.S. §605.0401.[38] A person, which includes an individual or a trust,[39] “may become a member without acquiring a transferable interest and without making or being obligated to make a contribution to the limited liability company.”[40] Upon LLC formation, individuals “become members as agreed by the persons before the formation of the company.”[41] After the formation of an LLC, a person may become a member pursuant to the terms of an operating agreement or by agreement of all existing LLC members.[42] The Revised LLC Act does not contain any further requirements or minimum ownership interests to be deemed a member.[43]

It is clear from the act that spouses (two people) are required to create a FLCPT, and in a FLCPT each spouse has a one-half share. What is not clear is whether an LLC that is solely owned by a FLCPT will be treated as a single-member or a multi-member LLC. Provided each spouse has some interest as part of his or her one-half share, that should be sufficient to create a multimember LLC and limit a creditor to a charging order as its exclusive remedy against a debtor spouse’s interest.[44]

When spouses have a joint creditor, “an obligation…may be satisfied from a community property trust of the settlor spouses.”[45] However, if the FLCPT owns an interest in an LLC and both spouses’ one-half shares consist of a portion of the LLC, then the charging order should remain the exclusive remedy.[46] While there is an argument that the purpose of the charging order is to protect a non-debtor member from being harmed and that joint debtor spouses would leave no non-debtor members to be protected, this argument should not prevail in Florida because “[w]hen a statute is clear, [the] Court need not look behind the statute’s plain language for legislative intent or resort to rules of statutory construction to ascertain intent.”[47] Unfortunately for creditors, “Florida’s courts have concluded that section 605.0503(3)’s ‘sole and exclusive remedy’ language restricts courts from providing a remedy beyond the narrow scope of the permissible charging order authorized in section 605.0503(1).”[48]

This FLCPT multimember complexity only applies when spouses are the only owners of the LLC. When an LLC interest is owned in part by a third party, the interest owned by spouses through their FLCPT is clearly subject to charging order protection. Therefore, the safest approach is for spouses to transfer their LLC interest into a FLCPT when the LLC also has another non-spouse member. If spouses do not wish to have another owner, they could consider forming an irrevocable trust for the benefit of another (like their children, parents, or charity) to be the other non-spouse owner. Another option is for spouses to be partial direct owners of the LLC without a “transferable interest” (i.e., the right to receive distributions) with the balance of the LLC ownership (the entirety of the transferable interest) owned by the FLCPT. Each spouse could own the direct interest separately or together as TBE; in either case this results in more than one member each with their own unique bundle of state law rights[49] in the LLC. Regardless of the approach taken, the LLC and its members should adopt an operating agreement that specifies who the members are to further evidence its multimember LLC status.[50] Additionally, to the extent an interest remains owned by spouses (individually or jointly), the operating agreement should include provisions directing how those interests will transfer upon the death of a member (such as to the FLCPT).[51]

Limited Liability Company: Tax Status

When an LLC only has one individual member, the default classification is a “disregarded” entity for federal income tax purposes, which means the entity is ignored and ownership is attributed directly to the member.[52] A single individual member disregarded LLC does not need to file an entity income tax return and may report all its tax attributes directly on the individual member’s Internal Revenue Service (IRS) Form 1040. When an LLC has two or more members, the default classification for federal income tax treatment is a partnership,[53] and the LLC must obtain an employer identification number (EIN), file a partnership income tax return, and issue IRS Form K-1s to the members.[54] If the FLCPT is the only owner of an LLC that has not elected to be taxed as a corporation, then the LLC remains eligible to be treated as disregarded for federal tax purposes[55] (meaning it need not apply for its own EIN or file a separate tax return[56]).

The availability of disregarded treatment may also permit spouses owning real property in their individual names to use the FLCPT to facilitate a tax-free exchange under §1031 of the Internal Revenue Code (1031 Exchange) when spouses desire to acquire a replacement investment property owned through an LLC (typically for creditor protection purposes). A 1031 Exchange allows taxpayers to sell real property without having to recognize immediate gain provided both the sale of real property and acquisition of a new replacement property are performed in accordance with 1031 Exchange rules.[57] One such rule requires the same taxpayer to be selling the relinquished property and buying the replacement property.[58] Therefore, if spouses form a wholly owned LLC to acquire the replacement property (typically for creditor protection purposes) but own the property to be relinquished in their individual names, then the tax-free treatment of the 1031 Exchange will not be available because the same taxpayer is not on both ends of the transaction — the spouses’ social security numbers are associated with the relinquished property and the LLC’s new EIN is associated with the acquired property.[59] Provided the IRS respects the community property nature of the FLCPT, then spouses can use the FLCPT to form a wholly owned LLC, thus, enabling spouses to acquire the replacement property in an LLC without violating the 1031 Exchange same taxpayer rule — spouses’ social security numbers are associated with the sale and acquisition because a community property LLC may be treated as a disregarded entity.[60]

S Corporations

Before transferring the ownership of an S corporation to a FLCPT, spouses must consider the eligible S corporation shareholder rules.[61] Only certain types of trusts are eligible to be S corporation shareholders.[62] If both spouses are eligible S corporation shareholders and the S corporation is owned by one or both spouses, then transferring the ownership interests into the FLCPT will not in and of itself cause a loss of the S corporation election.[63] However, if the settlor spouses divorce[64] or at any time either spouse fails to qualify as an eligible S corporation shareholder,[65] the FLCPT will no longer be an eligible shareholder and, thus, cause termination of S corporation status.[66]

Gifts to U.S. Citizen Spouses

Generally, spouses may gift assets outright to each other without limit and without any adverse tax consequences.[67] If a transfer is made into a trust and the grantor spouse retains “dominion and control” or the power to “revest beneficial title to the property” to another including himself or herself, the gift is considered incomplete and not a gift taxable event.[68] A spouse may make completed gifts in trust for his or her spouse without subjecting the transfer to gift or estate tax provided it is a “qualified terminable interest property” (QTIP) trust and an election to treat as such is made on a timely filed gift or estate tax return.[69] Generally, to satisfy the QTIP requirements the trust must pay income to the beneficiary spouse for life at least annually and may make no principal distribution to any other person during the spouse’s lifetime.[70] A trust also will qualify without mandatory payment of income if the donee spouse “has the right, exercisable in all events, to have the corpus distributed to her at any time during her life.”[71] Therefore, to the extent a gift is “incomplete,” it does not trigger gift tax and to the extent a gift is complete and passes outright or in a qualifying marital trust for a spouse, it also does not trigger tax. The Internal Revenue Service also has found that properly drafted joint trusts can avoid creating taxable events for spouses upon funding, dissolution, or death of a spouse.[72]

Provided the FLCPT is revocable by settlor spouses, any interest considered retained by one spouse is an incomplete gift and does not create a taxable event. Any interest considered gifted to the donee spouse will qualify for the martial deduction and also avoid a taxable event. If the FLCPT is irrevocable or contains provisions that make some part of the FLCPT irrevocable at a future date or occurrence (such as the death of the first spouse), the FLCPT may not be eligible for the marital deduction unless it is carefully drafted to ensure it qualifies as a QTIP trust.

Currently, the federal lifetime estate and gift tax exemption is $12,060,000 per person (lifetime exemption).[73] Spouses with estates valued well below their remaining lifetime exemptions are not at risk of owing any transfer tax. Nonetheless, filing a gift tax return may be required after making certain gratuitous transfers. In contrast, the treatment of transfers to a FLCPT is of critical importance for those spouses with estates valued more than their remaining lifetime exemption and careful consideration should be given to the terms of the FLCPT to minimize adverse transfer tax consequences. A QTIP trust provides a great mechanism to provide a surviving spouse with a creditor-protected bucket of assets, an allocation of the deceased spouse’s unused generation skipping transfer (GST) tax lifetime exemption,[74] and still have the QTIP trust assets enjoy a second basis step-up upon the passing of the surviving spouse.

Gifts to Non-Citizen Spouse

Unlike gifts to a citizen spouse, a gift during life to a non-citizen spouse is only exempt annually up to $164,000 (indexed for inflation) and any annual gift in excess of that amount will be subject to gift tax.[75] Therefore, if a citizen spouse sets up a FLCPT with a non-citizen spouse, the couple should be aware that one-half of the value of any transfers made to the trust by the citizen spouse may constitute gifts to the non-citizen spouse and count towards the annual non-citizen spouse gift exemption. Likewise, assets that pass at death from a citizen spouse to a non-citizen spouse are not eligible for the marital deduction.[76] It is possible to leave assets to a qualified domestic trust (QDOT), which allows for a marital deduction at the death of the citizen spouse but treats distributions from the trust as taxable events.[77]

When the gross estate of the first spouse to die is less than his or her remaining lifetime exemption, a QDOT will not be necessary. However, when the estate of the first spouse to die has a taxable value exceeding his or her remaining lifetime exemption, it will be necessary to include QDOT terms in the FLCPT to avoid estate tax exposure at the first spouse’s death.

Nuptial Agreements

Generally, a prenuptial or postnuptial agreement may provide for the relative rights and treatment of assets upon the death or divorce of spouses.[78] In the absence of a nuptial agreement, Florida law provides for “equitable division” of assets when spouses divorce,[79] and surviving spouses have certain inherent rights (such as homestead, elective share, and family allowance) upon the first spouse’s death.[80] The act does not directly address the applicability of nuptial agreements, whether executed before or after the creation of a FLCPT. Nonetheless, it does provide that the principles of equitable division “do not apply to the disposition of assets and liabilities held in a community property trust.”[81]

As previously discussed, F.S. §736.1505(4) provides that “[t]he right to manage and control property that is transferred to a community property trust is determined by the terms of the trust agreement,” and F.S. §736.1504(1) provides that the settlor spouses may agree upon “[t]he disposition of the property transferred to the trust on dissolution, [or] death…subject to ss.736.1507 and 736.1508.” F.S. §736.1507 provides that “one-half of the aggregate value” will make up the surviving spouse’s share with the balance being the deceased spouse’s share. The trustee is charged with determining the assets that make up the surviving spouse’s one-half share, “[u]nless provided otherwise in the community property trust agreement.”[82] F.S. §736.1508(1) provides that “the trustee shall distribute one-half of the trust assets to each spouse in accordance with subsection (3).”[83] Subsection (3) vests the trustee with the authority to divide the assets “[u]nless provided otherwise in the community property trust agreement.”[84] It further provides that the “trustee may not distribute real property or business interests…that would leave settlor spouses as co-owners…unless otherwise agreed to by the settlor spouses in a separate written agreement executed during the dissolution of marriage action.”[85] Subsection (4) states that the court handling the dissolution proceeding has jurisdiction over the spouses and the trustee “for purposes of effectuating the distribution of the community property trust assets consistent with the terms of the community property trust agreement.”[86]

If a nuptial agreement was executed before the FLCPT was created, it would appear that the default treatment would result in adhering to the FLCPT provisions to the extent they are inconsistent with the nuptial agreement. This result stems from the ability of parties to a contract, including a nuptial agreement, to modify the terms by their joint agreement. The act of executing the FLCPT, which must be signed by both spouses, should be interpreted as a modification of the nuptial agreement unless specifically provided otherwise and as long as “fair disclosure” is made of each spouse’s assets.[87] Similarly, if the nuptial agreement is properly executed after the FLCPT, it likewise should be interpreted as a modification of the FLCPT.[88] Even if the FLCPT is irrevocable by its terms, a later executed nuptial agreement should qualify as a modification of the FLCPT under common law.[89] Nonetheless, regardless of the timing of when a nuptial agreement is executed, upon dissolution of marriage, real property and business interests cannot be distributed in a manner that results in spouses as co-owners unless spouses agree “in a separate written agreement executed during the dissolution of marriage action.”[90] Additionally, the act appears to establish that FLCPT assets must be divided in a fashion that results in each spouse receiving one-half of the aggregate value of the FLCPT assets in the event of a death or divorce. This is especially evidenced by F.S. §736.1507, which specifically provides that the surviving spouse’s share is “one-half of the aggregate value” of the FLCPT’s assets, and F.S. §736.1508(1), which provides that the trustee “shall distribute one-half of the trust assets to each spouse.”[91] Both aforementioned sections do allow the trustee to determine how the FLCPT assets are to be divided, unless another method is provided for in the FLCPT, but neither section appears to allow deviation from the equal aggregate amount required to make up each spouse’s one-half share.[92]

Rather than ignoring any existing nuptial agreements, the prudent approach will be to include provisions in the FLCPT referring to them. This can be accomplished by incorporating into the FLCPT the terms of any existing nuptial agreements regardless of when executed, to the extent not inconsistent with the act’s mandatory requirements (pertaining to the treatment of FLCPT assets upon death or divorce). Assets outside of the FLCPT are not subject to the act and therefore a nuptial agreement should continue to control the treatment of those assets. Spouses will need to keep in mind the 50/50 split required of the FLCPT assets and to the extent they desire unequal distribution upon divorce, spouses should look to assets held outside of the FLCPT trust for this purpose.[93]

Enforceability of FLCPT

A properly executed FLCPT may still be challenged as to the enforceability if its terms. A FLCPT “may not be deemed unenforceable solely on the fact that the settlor spouses did not have separate legal representation.”[94] However, a FLCPT will be unenforceable if the FLCPT is unconscionable (determined by the court as a matter of law), not voluntarily executed, or the product of “fraud, duress, coercion, or overreaching.”[95] This section is consistent with traditional methods used to attack the enforceability of contracts and other testamentary documents.[96] Additionally, a FLCPT may be unenforceable if before execution a spouse: 1) was not provided “fair and reasonable disclosure of” property and liabilities; 2) did not sign a waiver “expressly waiving right to disclosure;” or 3) was not otherwise aware of the “property or financial obligations of the other spouse.”[97] As discussed, a postnuptial agreement requires “fair disclosure” to waive spousal rights.[98] A FLCPT is enforceable to the extent a waiver was signed discharging the obligation to disclose assets and liabilities, but such waiver would appear to be insufficient to waive spousal rights (such as elective share, family allowance, homestead, etc.). Therefore, the prudent approach to executing an enforceable FLCPT includes providing disclosure of all assets and liabilities in the same fashion spouses are required to do when entering into a postnuptial agreement.[99] This approach, in addition to the enforceability benefit, should also qualify the FLCPT as a modification to a prior executed prenuptial agreement or postnuptial agreement to the extent the prior agreements are inconsistent with the FLCPT’s terms.


The enactment of the FLCPT act has added another valuable tool to the married couple estate planning toolbox. As discussed, the FLCPT provides significant flexibility and opportunities for spouses, but those potential benefits must be weighed against the potential drawbacks and tradeoffs. If spouses ultimately decide to create a FLCPT, it is of the utmost importance that practitioners carefully consider the specific terms and provisions to be included in the trust due to the significant impact they may have with regard to tax basis, the death of a spouse, homestead, creditors, business entities, gifts to spouse, nuptial agreements, and enforceability issues.

[1] Fla. Stat. §736.1504(2) (2021).

[2] Emphasis added.

[3] Fla. Stat. §736.1507 (2021).

[4] See Percopo, Understanding the New Florida Community Property Tax, Part I, Tax Basis: Fractional Ownership, 96 Fla. Bar. J. 16 (July/Aug. 2022).

[5] For the surviving spouse’s share of community property assets to receive a FMV basis adjustment at the death of the first spouse, “at least one-half of the whole” must be included in the deceased spouse’s gross estate. I.R.C. §1014(b)(6).

[6] Giving another this power implicates the Florida Trust Code. See generally Charles D. Rubin and Jenna G. Rubin, Protections and Directors and Advisers: Oh My! The New Florida Uniform Directed Trust Act, 96 Fla. B. J. 9. (Mar./Apr. 2022).

[7] See Joseph M. Percopo, The Impact of Co-Ownership on Florida Homestead, 86 Fla. B. J. 5 (May 2012), for a detailed analysis of Florida homestead.

[8] Fla. Stat. §732.401(1) (2021).

[9] Fla. Stat. §732.401(2) (2021) (note that the election must be made within six months of a spouse’s death).

[10] Unless the deceased spouse is not survived by any descendants, the surviving spouse will own his or her original interest and either 1) a life estate in the improperly devised portion of homestead with the remainder to the deceased spouse’s descendants; or 2) if the surviving spouse elects, one-half of the improperly devised portion with the other half being owned by the deceased spouse’s descendants. See Aronson v. Aronson, 81 So. 3d 515 (Fla. 3d DCA 2012).

[11] Fla. Stat. §732.7025 (2021).

[12] One author has suggested such stating, “[o]n the death of the first spouse, the decedent’s one-half interest in the homestead would not be subject to devise because of the minor child.” Anthony P. Guettler, Planning with Florida Community Property Trusts, Florida Bar Real Property, Probate and Trust Law Section, Actionline (Winter 2021).

[13] If an election was not made under Fla. Stat. §732.401(2).

[14] Emphasis added.

[15] Fla. Stat. §731.201(10) (2021) (emphasis added) (the definition also includes “to dispose of real or personal property by will or trust” when devise is used as a verb).

[16] Fla. Stat. §732.4015(2)(b) (2021); see also Fla. Stat. §736.1109 (2021) (“If a devise of homestead under a trust violates the limitations on the devise of homestead in s. 4(c), art. X of the State Constitution, title shall pass as provided in s. 732.401 at the moment of death.”) (Emphasis added).

[17] Emphasis added.

[18] Fla. Stat. §736.1507 (2021).

[19] I.R.C. §1014(b)(6).

[20] See Death of a Spouse section.

[21] Provided that the transferring spouses do not “retain a power, held in any capacity, acting alone or in conjunction with any other person, to revoke or revest” the homestead in either spouse. Fla. Stat. §732.4017 (2021). While Fla. Stat. §736.1507 would permit the homestead to pass back to a surviving spouse, it is not a retained power that he or she can unilaterally exercise, and it will not be treated as a devise even if it passes back due to the “death of the transferor.” Id.

[22] Fla. Const. art. X, §4(c) (2021).

[23] Fla. Stat. §736.151 (2021).

[24] To the extent it is considered part of that spouse’s one-half share. See Creditors section.

[25] Beal Bank, SSB v. Almand & Associates, 780 So. 2d 45 (Fla. 2001); First Nat’l Bank v. Hector Supply Co., 254 So. 2d 777 (Fla. 1971).

[26] Fla. Stat. §736.1506 (2021) (potentially the interest exposed can be greater than one-half if the FLCPT provides a greater amount for the debtor spouse).

[27] Fla. Stat. §736.1502(2) (2021).

[28] Fla. Stat. §§736.1505(3) and 736.1501(1) (2021).

[29] Fla. Stat. §§736.1507 and 736.1508(3) (2021).

[30] Fla. Stat. §736.1506 (2021) (“Except as provided in s. 4, art. X of the State Constitution. . . an obligation. . . maybe satisfied from that [debtor] spouse’s one-half share.”)

[31] See Alan Gassman & Christopher Denicolo, The FLCPT: Rethinking Client Trust Logistics with a New Powerful Catalyst, LISI Estate Planning Newsletter #2893 (July 8, 2021), available at (“Despite the advantages of a FLCPT, a married couple transferring assets to a Community Property Trust will cause assets that would otherwise be protected from creditors to be accessible to them, such as if and when the married couple may transfer tenants by the entireties assets, annuities, life insurance, 529 Plans, and wage accounts to a Community Property Trust.”).

[32] While this potentially could be a fraudulent transfer as to part of the funds transferred, a creditor would be unable to unwind the homestead payoff (subject to extremely limited exceptions). Havoco of America, Ltd. V. Hill, 790 So. 2d 1018 (Fla. 2001) (demonstrating the far-reaching creditor protection afforded Florida homestead property even in the face of a fraudulent transfer).

[33] For example, FLCPT assets consist of a cash account ($100), an investment account ($200), and an interest in a multimember LLC ($400) in which a majority of the members can take unilateral action. If the LLC interest is divided 60/40, the 60% interest with a 15% control premium has a fair market value (FMV) of $276 ($400 x 60% = $240 x 15% control premium = $276), and the 40% interest with a 30% lack of control/marketability discount has a FMV of $112 ($400 x 40% = $160 x 30% discount = $112). The LLC interest is worth $388 ($276+$112), and the total value of the FLCPT assets is $688 ($100 + $200 + $388). The decedent spouse’s one-half interest is $344 ($688 x 50% = $344). If the controlling LLC interest ($276) is allocated to the debtor spouse’s one-half share, then only an additional $68 of the cash need be allocated to the debtor spouse’s share. The non-debtor spouse receives $32 cash, the $200 investment account, and $112 40% LLC interest. However, when the valuation discounts are removed, the non-debtor spouse owns assets worth $392 (since 40% of LLC without discounts is worth $160) and the debtor spouse owns assets worth $308 (since 60% of LLC without premium is worth $240). In this example, more economic value is pushed to the non-debtor spouse while at the same time limiting the assets exposed to the debtor spouse to only $68. Of course, even less can be available to a creditor by increasing the percentage of the LLC allocated to the debtor spouse’s one-half share.

[34] Fla. Stat. §605.0304 (2021) (A member or manager is not personally liable, directly or indirectly…for a debt, obligation, or other liability of the company solely by reason of being or acting as a member.”).

[35] Fla. Stat. §605.0503(4) (2021).

[36] Fla. Stat. §605.0503(1), (3), & (6) (2021).

[37] Kostoglou v. Fortuna, 290 So. 3d 924 (Fla. 4th DCA 2020).

[38] Fla. Stat. §605.0102(40) (2021).

[39] Fla. Stat. §605.0102(48) (2021).

[40] Fla. Stat. §605.0401(4) (2021).

[41] Fla. Stat. §605.0401(2) (2021).

[42] Fla. Stat. §605.0401(3) (2021).

[43] Gorrin v. Poker Run Acquisitions, Inc., 237 So. 3d 1149 (Fla. 3d DCA 2018) (trial court exceeded its authority when it froze the LLC’s ability to conduct business, holding that the creditor of the 95% majority owner of the LLC was limited to a charging order as the “sole and exclusive remedy”); Kostoglou v. Fortuna, 290 So. 3d 924 (Fla. 4th DCA 2020) (found that creditor of debtor with a 5% membership interest in a multimember LLC was only entitled to a charging order against the debtor’s transferable interest).

[44] LIV I LLC v. Regions Bank, 310 So. 3d 1136 (Fla. 2d DCA 2021) (“In order for [the single member LLC foreclosure] remedy to be available…there can be no factual questions regarding whether the LLC is a single-member LLC.”); see also Pansky v. Barry S. Franklin & Associates, P.A., 264 So. 3d 961 (Fla. 4th DCA 2019) (found a material dispute existed as to whether the LLC was a single member LLC and therefore the charging order was the only remedy available).

[45] Fla. Stat. §732.1506(2) (2021).

[46] To the extent there is a conflict between Fla. Stat. §§732.1506(2) and 605.0503, the specific (charging order protection) should control over the general (satisfaction of creditors). See Palm Beach County Canvassing Bd. v. Harris, 772 So. 2d 1273 (Fla. 2000)(“Where two statutory provisions conflict, the specific controls the general.”).

[47] Williams v. State 121 So. 3d 524 (Fla. 2013); see also Young v. Levy, 140 So. 3d 1109 (Fla. 4th DCA 2014) (creditor, a 51% majority owner in the LLC, was limited to the “sole and exclusive remedy” of a charging order against the 49% debtor-member’s interest).

[48] Ramos v. Mississippi Real Estate Dispositions, LLC, 314 So. 3d 643 (Fla. 3d DCA 2021); see also Capstone Bank v. Perry-Clifton Enterprises, LLC, 230 So. 3d 970 (Fla. 1st DCA 2017); Rodriguez v. Pasat Roofing, Inc., 2014 WL 11706451 (S.D. Fla. Sept. 29, 2014).

[49] Beal Bank, SSB v. Almand & Associates, 780 So. 2d 45 (Fla. 2001) (“Although a tenancy by the entireties and joint tenancy with right of survivorship share all of the same characteristics of form, there are significant differences in the legal consequences between the forms of ownership.”).

[50] See Stanfield v. On Target Consulting, LLC, 90 N.E.3d 962, 965 (Ohio Ct. Ap. 2017).

[51] See Blechman v. Est. of Blechman, 160 So. 3d 152 (Fla. 4th DCA 2015); Finlaw v. Finlaw, 320 So. 3d 844 (Fla. 2d DCA 2021); see also Tita v. Tita, 2022 334 So. 3d 646 (Fla. 4th DCA 2022).

[52] Treas. Reg. §301.7701-3(b)(1)(ii).

[53] Treas. Reg. §301.7701-3(b)(1)(i).

[54] Partnerships are pass-through entities so while the LLC must file a partnership return, each member will report the tax attributes on his or her personal return as provided in the LLC’s K-1.

[55] Rev. Proc. 2002-69.

[56] Filing a partnership return may lend further credence to LLC being treated as a multimember LLC. However, tax filings alone are not determinative of ownership status. Bhanji v. Baluch, 99 A.D.3d 587, 587-88, 952 N.Y.S.2d 545, 546 (2012).

[57] I.R.C. §1031.

[58] “[T]he language of §1031(a)(1) states that an exchange of like-kind property will qualify provided the replacement property received is ‘to be held for’ productive use or investment, which reflects the continuity of ownership concept underlying nontaxable exchanges.” BNA portfolio, 567-5th, see discussion at II.B; see also TAM 9818003.

[59] See Chase v. Commissioner, 92 T.C. 874 (1989).

[60] See Rev. Proc. 2002-69; see also PLR 9751012PLR 9807013, PLR 9850001PLR 199911033.

[61] I.R.C. §1361.

[62] I.R.C. §1361(c)(2) (includes subpart E of Part 2 of subchapter J (grantor) trusts, a qualifying trust which continues after the grantor’s death (for a period up to two years), a trust created pursuant to a will (for a period up to two years), a voting trust, an electing small business trust, and a qualified subchapter S trust).

[63] Generally, a grantor trust can only have one grantor to be eligible. I.R.C. §1361(c)(2)(A)(i). Nonetheless, a joint grantor trust between a husband and wife is treated as one shareholder and thus is an eligible owner of a S corporation interest. Treas. Reg. §1.1361-1(e)(2) (“Stock owned by a husband and wife…is treated as if owned by one shareholder, regardless of the form in which they owned the stock. For example, if husband and wife are owners of subpart E [Grantor] trust, they will be treated as one individual.”); see also PLR 200226006 (June 28, 2002) (providing that a previously eligible grantor trust became an ineligible owner when a transfer resulted in an additional individual being considered a grantor of the trust).

[64] Treas. Reg. §1.1361-1(e)(2) (the treatment of a joint trust as a qualified shareholder “will cease upon dissolution of the marriage for any reason other than death”).

[65] See PLR 202149004 (community property laws of another country caused a nonresident alien to have an ownership interest in the entity which caused termination of the S corporation status; however, the IRS granted relief for inadvertent termination).

[66] In addition to the unfavorable tax status of the entity, it is also very common for shareholder and entity agreements to contain provisions that hold a shareholder liable to the entity and the other shareholders for causing termination of the S corporation status.

[67] I.R.C. §2523; see also J. Paul Singleton, Yes, Virginia, Tax Loopholes still Exist: an Examination of the Tennessee Community Property Trust Act of 2010, 42 U. Mem.. L. Rev. 369, 394 (2011).

[68] Treas. Reg. §25.2511-2(b)-(c).

[69] I.R.C. §2523(f) (QTIP rules for gifts during life to spouse); I.R.C. §2056(b)(7) (QTIP rules for transfers upon death).

[70] I.R.C. §§2523(f)(2) and 2056(b)(7)(B).

[71] Treas. Reg. §25.2523(e)-1(f).

[72] See PLR 200101021; PLR 200210051.

[73] Note that if Congress takes no action, under current law the exemption will be approximately half per person beginning in 2026.

[74] This is critical because the GST lifetime exemption ($12.06 million) is not portable like the gift and estate tax exemption and so it will be lost if not used.

[75] I.R.C. §2523(i).

[76] I.R.C. §§2056(d)(1).

[77] I.R.C. §§2056(d)(2) & 2056A.

[78] Fla. Stat. §§732.701, 732.702, & 61.079 (2021).

[79] Fla. Stat. §61.075 (2021).

[80] See Joseph M. Percopo, Primer: Rights of a Surviving Spouse in Florida, Orange County Bar Association Briefs (Aug. 2016).

[81] Fla. Stat. §736.1508(1) (2021).

[82] Fla. Stat. §736.1507 (2021).

[83] Emphasis added.

[84] Fla. Stat. §736.1508(3) (2021).

[85] Id. (emphasis added).

[86] Fla. Stat. §736.1508(4) (2021).

[87] Fla. Stat. §732.702 (2021) (provides that to be a valid waiver of spousal rights “[e]ach spouse shall make fair disclosure to the other of that spouse’s estate if the agreement, contract, or waiver is executed after marriage”).

[88] Provided spouses make fair disclosure of their assets to each other. Id.

[89] Pursuant to Florida common law, “[t]he terms of a trust may be modified if the [grantor] and all the beneficiaries consent.” Preston v. City Nat. Bank of Miami, 294 So. 2d 11 (Fla. 3d DCA 1974). F.S. §736.1504(4) provides that “notwithstanding any other provisions of this code, the settlor spouses shall be deemed to be the only qualified beneficiaries of the community property trust.” Therefore, under common law, spouses in their capacity as settlors and qualified beneficiaries can modify an irrevocable FLCPT with a properly executed nuptial agreement.

[90] Fla. Stat. §736.1508(3) (2021).

[91] Emphasis added.

[92] Fla. Stat. §§736.1507 & 736.1508 provide the trustee by default the power to determine the division and distribution of FLCPT assets, but there is no corresponding discretionary language to permit an unequal distribution. To the extent both sections allow the terms of the FLCPT to adjust the default, that only allows modification of the method of distribution and not the aggregate value of each spouse’s share of the FLCPT assets.

[93] It is unclear whether, after the division of the FLCPT assets in a dissolution action, a nuptial agreement can direct the treatment of the now separate assets formerly of the FLCPT.

[94] Fla. Stat. §736.1512(3) (2021).

[95] Fla. Stat. §736.1512(1) (2021).

[96] Johnson v. Davis, 480 So. 2d 625 (Fla. 1985) (discussed factors constituting fraud in contract matter); Townsend v. Morton, 36 So. 3d 865 (Fla. 5th DCA 2010) (addressed fraud in the context of a deed); In re Estate of Carpenter, 253 So. 2d 697 (Fla. 1971) (addressed factors of undue influence in a will contest).

[97] Fla. Stat. §736.1512(1)(d) (2021).

[98] Fla. Stat. §736.702 (2021).

[99] This may be accomplished by attaching schedules of disclosed assets or signing affidavits pertaining to assets and liabilities of each spouse.

Joseph M. Percopo practices law in Orlando. His practice concentrates on estate and trust planning and administration, asset protection planning, business, and tax law. He is a board member of the Central Florida Estate Planning Council, a former RPPTL section fellow, and recent graduate of the Florida Fellows Institute of the ACTEC.

This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Sarah Swaim Butters, chair, and Allison Archbold and Homer Duvall, editors.

Real Property, Probate and Trust Law