Powerful Estate Planning Tool Provides a Double Step-Up in Basis

For farm-owning families, the new Kansas Community Property Trust Act provides an opportunity to opt in to full community property treatment of assets for estate planning purposes. This provides significant tax advantages that can eliminate millions in capital gains taxes on appreciated farmland, thanks to the key benefit of a double step-up in basis upon the first spouse’s death.

The new law, which became effective on July 1, 2026, enables married couples to place farm assets into a specially structured trust that qualifies for community property treatment under federal tax law. For farm families with highly appreciated land, equipment, or business interests, this can significantly reduce capital gains taxes, as well as simplify succession planning and preserve wealth for the next generation.

Since assets held in the trust are considered community property during the marriage, both spouses have equal ownership rights. The double step-up in basis occurs on the death of the first spouse. For a farm-owning family, this can be an important decision-making time. The surviving spouse may not have the desire or the ability to continue running the farm. The ability to sell the highly appreciated farmland and avoid capital gains taxes — due to the step-up in basis — takes a lot of stress out of the decision.

In essence, the Kansas Community Property Trust allows farm assets to pass cleanly to a surviving spouse without triggering capital gains or forcing premature sales.

How this New Law Benefits Farm Families

Historically, Kansas has followed what is known as common-law property rules. Under common-law rules, only half of jointly owned farmland receives a step-up in basis at the first spouse’s death.

The new law allows married couples to opt in to community property treatment through a Kansas Community Property Trust for specific assets. For families with long-held farmland and assets, the availability of this trust has significant ramifications for estate and tax planning.

While the Kansas Community Property Trust has the potential to benefit a broad range of farm families, those who have been married a long time, plan to sell land or a farm business after the first spouse’s death, and who want to preserve wealth for the next generation may find it particularly beneficial. Additionally, farm owners with significant depreciation recapture exposure should consider this Trust.

How the Double Step-Up in Basis Works

Under the federal tax code, community property receives a full step-up in basis at the first spouse’s death. In other words, both halves of the asset reset to fair market value. For example:

A farm purchased for $500,000 and now worth $4 million would receive a full basis reset, eliminating capital gains if the surviving spouse were to sell. This can save families potentially hundreds of thousands of dollars in tax liabilities, especially when selling land to fund retirement, transition operations or equalize inheritances.

Estate Planning Benefits

As with other trusts, the Kansas Community Property Trust allows farm assets to pass cleanly to the surviving spouse, avoiding probate. The surviving spouse can continue to operate the farm or lease the land with no tax pressure. Moreover, families can choose when to sell or transfer land without being influenced by tax consequences.

The Trust can also be integrated with buy-sell agreements, entity structures and next-generation succession plans, as well as conservation easements, long-term farm transition plans and gifting strategies.

Tax Planning Advantages Beyond the Step-Up

The Trust eliminates depreciation recapture on farm buildings or equipment at the first spouse’s death.

It allows surviving spouses to sell appreciated land or business interests with little or no taxable gain. This is particularly beneficial for families who expect to sell land before dividing proceeds among the heirs.

The Mechanics — How to Set Up the Trust

Married couples should first meet with their estate and tax planning advisors to determine if a Kansas Community Property Trust would benefit their families. If they decide to move ahead, the next step would be moving farm assets, including land, equipment and business interests, into the Trust.

Requirements include:

  • A qualified Kansas trustee (resident or corporate fiduciary)
  • A trust document signed by both spouses declaring community property intent
  • Proper Kansas nexus and record-keeping

Once funded, the assets inside the Trust receive community property treatment under federal tax law.

Considerations for Farm Families

Certain rules around the Trust may have significant implications for some families, so it’s important to understand these issues:

  • Irrevocability and control — The Kansas Community Property Trust often requires joint consent for amendments or revocation, which is a more rigid structure than a standard revocable trust.
  • Debts — The debts of one spouse generally attach only to that spouse’s half of the trust property.
  • Divorce — Divorce typically terminates the trust and divides the assets, which can be complex for farm operations.
  • Prenuptial agreements — If there is a prenup in place prior to the establishment of the Trust, the Trust supersedes it.
  • Gifting implications — Low-basis assets gifted shortly before death may not qualify for the step-up. Beware of the timing of any gifts.

Coordinating the Trust with your Estate Plan

It’s important to integrate the Trust with your wills, other revocable trusts and farm LLCs and partnerships. Your estate and tax advisors will be key partners in this. Additionally, you will need to ensure that beneficiary designations on retirement accounts, life insurance and other relevant accounts align with the Kansas Community Property Trust strategy.

Questions?

The Kansas Community Property Trust provides farm families with a powerful new estate and tax planning tool that can produce significant tax savings, simplify succession plans and remove a lot of complexity from estate planning.  It is, however, not appropriate for every situation so professional guidance is necessary to determine how this might affect you personally.

If you would like to discuss whether a Kansas Community Property Trust would benefit your family, contact an Adams Brown agriculture accountant.