Which states have one, stated as carefully as the sources allow. IRS Publication 555 names Alaska, Tennessee and South Dakota as states with a community property election, in a note saying the publication does not address the federal tax treatment of property subject to it. Two more states enacted statutes after that note was written: Kentucky in 2020, at KRS 386.620 to 386.624, and Florida in 2021, whose part of the trust code is titled the Community Property Trust Act at Fla. Stat. 736.1501. The instruments are not identical and the statutes do not all use the same name for them, so a couple considering one is choosing a particular state's statute rather than a generic product.
The formalities are the statute, not paperwork. Both the Kentucky and Florida acts require the trust to declare expressly that it is a community property trust under that state's law, to have at least one qualified trustee, to be signed by both spouses, and to open with a warning in capital letters. Kentucky's prescribed text begins "THE CONSEQUENCES OF THIS TRUST MAY BE VERY EXTENSIVE, INCLUDING BUT NOT LIMITED TO YOUR RIGHTS WITH YOUR SPOUSE BOTH DURING THE COURSE OF YOUR MARRIAGE AND AT THE TIME OF A DIVORCE." Both states define a qualified trustee as an in-state individual or an institution authorized to act as trustee there, which is why an out-of-state couple needs a connection to the state beyond the document itself.
Domicile is expressly irrelevant, and that is the whole design. Kentucky provides that "whether or not both, one (1), or neither spouse is domiciled in this state," spouses may classify property as community property by transferring it to such a trust; Florida says the same. The trust is also enforceable without consideration, so no exchange between the spouses is required.
At the first death the split is statutory. Both acts provide that one half of the aggregate value of the trust property reflects the surviving spouse's share and the other half the decedent's. Florida states the consequence expressly: the survivor's half is not subject to testamentary disposition by the decedent or to the state's laws of succession, while the decedent's half is, and the decedent's half is not included in the elective estate, which matters in a state with a spousal elective share.
At divorce the trust terminates rather than being divided by a judge. Kentucky provides that on dissolution the trust terminates and the trustee distributes one half of the trust assets to each spouse, with each receiving half of each asset unless the spouses agree otherwise in writing. Florida reaches the same fifty-fifty result and expressly disapplies its equitable distribution statute to the trust's assets, while adding timing rules: filing for dissolution does not terminate the trust automatically, but a dissolution action pending for 180 days does, unless a spouse objects, the court orders otherwise, the spouses agree in writing, or the trust says otherwise. A couple whose circumstances have diverged since the trust was signed is therefore agreeing in advance to an even split.
Creditors and children are addressed too. Kentucky provides that a debt incurred by one spouse, before or during the marriage, may be satisfied from that spouse's one-half share, and a debt incurred by both during the marriage from the trust generally. Florida provides that the trust does not adversely affect a child's right to support, and makes a trust unenforceable where the spouse resisting it proves it was unconscionable when made, was not signed voluntarily, was the product of fraud, duress, coercion or overreaching, or followed a failure of fair and reasonable financial disclosure.
The unresolved federal question is the honest center of the subject. Section 1014(b)(6) gives a new basis to the surviving spouse's half of community property held "under the community property laws of any State," provided at least half the community interest was includible in the decedent's gross estate. Florida's statute attempts to secure that result by declaring, "for purposes of the application of s. 1014(b)(6) of the Internal Revenue Code," that a community property trust is considered a trust established under the community property laws of the state. A state legislature cannot bind the IRS on the meaning of a federal statute, and Publication 555 says only that it does not address the treatment of these elections. So the position is not that the adjustment has been denied; it is that the agency which would confirm it has not, and the entire commercial case for these trusts assumes the answer.
Two further limits worth knowing. Property distributed out of the trust stops being community property under that state's law, so the character does not travel with the asset indefinitely. And a couple who later move to a community property state, or who already hold property from one, are dealing with two overlapping systems rather than one.
