Answer to Harris e mail 6 26 26 FINAL
The letter, dated June 26, 2026, from Craig R. Hersch, a Florida Bar Board‑Certified Wills, Trusts & Estates attorney and CPA, addresses two client questions from Mr. and Mrs. Harris Kenner. First, it explains that a Florida Community Property Trust (CPT) is an income‑tax planning tool, not an estate‑tax tool, that allows both spouses’ halves of appreciated property to receive a full step‑up in basis upon the death of the first spouse, thereby reducing future federal capital‑gains tax. The explanation includes the statutory background, the requirement to elect community‑property treatment, and a numerical example showing the tax benefit. Second, it discusses trust income‑tax filing options for the proposed Heritage Trusts for the children Naomi and Ryan. Two structures are compared: a Beneficiary Deemed Owner Trust (grantor trust) using the children’s SSNs versus obtaining separate EINs and filing fiduciary Form 1041. The attorney recommends the separate‑EIN approach for trusts of the contemplated size, noting the modest administrative burden relative to the significant creditor, divorce, estate‑tax, and flexibility advantages. He also mentions future merging of the Heritage Trusts with the children’s eventual trusts to simplify administration. The letter concludes with a request for the clients to sign the engagement letter to proceed.
Topics
Florida Community Property Trust as a capital‑gains step‑up tool
Explanation that a CPT allows both halves of appreciated assets to receive a full step‑up in basis at the first spouse’s death, reducing future federal capital‑gains tax.
Distinguishing federal estate tax from capital‑gains tax in trust planning
Clarifies that the CPT does not affect federal estate tax liability; its purpose is solely income‑tax (capital‑gains) planning.
Illustrative example of full versus half basis step‑up
Numeric scenario showing a $1 M investment growing to $5 M, comparing the tax outcome under common‑law rules (50% step‑up) versus CPT (100% step‑up).
Trust income‑tax filing options for Heritage Trusts
Comparison of Beneficiary Deemed Owner Trust (grantor trust using beneficiaries’ SSNs) versus separate EIN with fiduciary Form 1041 filing.
Recommendation for separate EIN and Form 1041 for Heritage Trusts
Attorney’s advice to obtain separate taxpayer IDs and file annual fiduciary returns, emphasizing modest administrative trade‑off against creditor, divorce, estate‑tax, and flexibility benefits.