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From Ohio Couples Can Use Tennessee Trusts for Rental Property Tax Benefits

How could Ohio residents utilizing Tennessee trust law affect Wilson?

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Ohio Attorney General may need to advise on cross-state trust tax benefits. Ohio couples can establish a community property trust under Tennessee law to achieve a double step-up in basis for appreciated assets, such as rental property. This mechanism allows the cost basis to reset to the current market value upon the first spouse's death, potentially eliminating capital gains tax on long-held assets. However, the reports note significant legal risks, including the IRS having never approved these trusts for nonresidents and the elimination of tenancy-by-the-entirety creditor protection. As the chief legal officer of Ohio, Wilson's office would likely need to address the legal implications and risks associated with this specific cross-state tax strategy for Ohio residents.

Reported by 1 independent outlet Written Oct 9
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How it reaches Wilson

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The facts so far

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  • Ohio couples can place a rental bought for $110,000 in 1988 into a Tennessee community property trust.aol.com
  • The trust allows both spouses' cost basis to reset to current market value at the first death.aol.com
  • The IRS has never approved these trusts for nonresidents.aol.com
  • Converting to community property eliminates tenancy-by-the-entirety creditor protection.aol.com
  • Tennessee became the second state to let couples opt into community property through a trust in 2010.aol.com

Why it matters

For Ohio residents, this trust structure offers a significant potential tax advantage, allowing them to avoid substantial capital gains tax on long-held investment properties. The ability to reset the cost basis to the current market value upon the first death could dramatically alter the financial outcome of estate planning for couples with appreciated assets.

However, the benefits are balanced by considerable legal and regulatory risks. The IRS has not validated these trusts for nonresidents, and the mechanism itself reduces standard creditor protections. This complexity means that the legal oversight provided by the state's chief legal officer is crucial for residents attempting to navigate this cross-state financial strategy.

What we don't know yet

  • Has the Ohio Attorney General's office issued any guidance regarding the legal risks of these trusts?
  • What specific legal challenges might arise if the IRS rules against these trusts?

What would change this answer

The IRS issues a formal ruling on these trusts for nonresidents.This would immediately clarify the legal viability of the strategy, making the effect on Wilson's office either much stronger (if the ruling is negative) or less urgent (if the ruling is positive).
Wilson's office publishes a formal advisory opinion on the matter.This would confirm the legal status of the trusts in Ohio, potentially mitigating the legal uncertainty for residents and reducing the immediate need for further review.

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  • About Probate Attorney

    If the IRS challenges the trust structure, how might a probate attorney's involvement change the outcome for the residents?

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Brind's analysis is written by AI from the reporting linked above and can be wrong. This explainer is a possibility worth considering, not a forecast: steps marked as Brind's reasoning are not stated in the reporting. It is not investment advice; do your own research.