Double Step-Up in Basis Fuels a Powerful Tax and Estate Planning Tool

A new Kansas law enabling married couples to treat their assets as community property promises to significantly reduce capital gains taxes for families with appreciated assets, as well as simplify estate planning and succession planning. For families who own businesses, depreciated real estate or concentrated investment positions, the savings could be substantial. 

The Kansas Community Property Trust Act, which became effective on July 1, 2026, achieves these savings through one key provision — a double step-up in basis that occurs upon the death of the first spouse. Historically, Kansas has followed common-law property rules. Under common-law rules, only half of jointly owned assets 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 families with long-held 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 families, those who have been married a long time, own businesses or highly appreciated assets, and who want to preserve wealth for the next generation may find it particularly beneficial.  

Why was this Trust Created? 

For many years, community property treatment of a married couple’s assets was available in only nine default community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. But there are some benefits to community property law that have led a growing number of states, including Kansas, to enact laws allowing their residents to create community property trusts.  

What this means is that the assets that a married couple elects to place into the Community Property Trust are treated as equally owned — 50/50 — under state and federal tax laws. 

It’s important to note that the availability of this Trust does not turn Kansas into “a community property state.” Its benefits are not automatic to every married couple. Only married couples who legally create a Community Property Trust and place assets into it will benefit from the Trust. 

Who Should Consider a Kansas Community Property Trust? 

Married couples with significant appreciated assets could realize significant tax savings by incorporating a Trust into their estate plan. A discussion with tax, financial and wealth advisors may be worthwhile if you own: 

  • Appreciated investment portfolios 
  • Depreciated commercial real estate 
  • Agricultural property 
  • Closely-held businesses 
  • Other assets with substantial unrealized gains 

Estate Planning Benefits 

As with other trusts, the Kansas Community Property Trust allows the assets that are placed within it to pass cleanly to the surviving spouse, avoiding probate. The surviving spouse can continue to operate the family business with no tax pressure. Moreover, families can choose when to sell or transfer business and financial assets 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 long-term business transition plans and gifting strategies. 

When working with advisors to set up a Kansas Community Property Trust, taking a holistic approach and including tax and wealth advisors at the table are key considerations. They will look at your complete financial and wealth picture and advise you on which assets you may want to consider including in the Trust. Only appreciating or highly appreciated assets should be considered, and qualified accounts such as tax-favored retirement plans would not be included. 

Tax Planning Advantages Beyond the Step-Up 

The Trust eliminates depreciation recapture on business assets at the first spouse’s death. 

It allows surviving spouses to sell appreciated assets or business interests with little or no taxable gain. This is particularly beneficial for families who expect to sell their assets 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 assets, including business interests, certain hard assets and financial assets 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 state and federal tax law. 

Key Considerations

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

  • Revocability 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 certain business operations. 
  • Assets brought into the marriage — Assets that were brought into the marriage by one spouse could potentially be contested in a divorce if they were later put into the Community Property Trust. 
  • Prenuptial agreements — If there is a prenup in place before 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, 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 owners of closely-held businesses and highly appreciated assets 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. 

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