Joint Exempt Step-Up Trust (JEST) in Florida

A JEST is a joint revocable trust designed to produce a full basis step-up on all trust assets when the first spouse dies. In a common law state like Florida, jointly owned assets normally receive a step-up on only the deceased spouse’s half. The JEST achieves the full step-up through credit shelter trust funding mechanics that cause both spouses’ assets to be included in the deceased spouse’s gross estate.

The JEST also provides creditor protection and “next spouse” protection that a standard joint trust does not. After the first spouse’s death, the CST-A becomes irrevocable. A subsequent creditor of the surviving spouse cannot reach those assets. A second marriage does not expose them to a new spouse’s claims.

How the JEST Achieves a Full Step-Up

Under IRC § 1014(a)(1), property acquired from a decedent receives a basis equal to fair market value at death. The question is which assets count as “acquired from” the decedent. In a standard joint trust, only the deceased spouse’s half qualifies. The surviving spouse’s half keeps its original basis.

The JEST solves this by giving each spouse a general power of appointment over the other spouse’s share. When the first spouse dies, the surviving spouse’s share is included in the deceased spouse’s gross estate because the deceased spouse held a general power over it. The entire trust—not just the deceased spouse’s half—receives a new basis under § 1014.

The IRS has addressed this structure in several private letter rulings and technical advice memorandums. The 1993 TAMs and 2001/2002 PLRs support the position that assets subject to a general power of appointment held by a decedent receive a stepped-up basis, even when the assets were originally contributed by the surviving spouse. These rulings are not binding precedent, but they are the strongest federal authority available for the JEST technique.

The IRC § 1014(e) Limitation

One statutory limitation narrows the JEST’s application. IRC § 1014(e) provides that appreciated property acquired by the decedent as a gift within one year before death does not receive a basis step-up if the property passes back to the donor or the donor’s spouse.

This means the JEST works best when the trust has been funded and in place well before either spouse’s death. A couple that funds a JEST five years before the first death has no § 1014(e) concern. A couple that funds it after one spouse receives a terminal diagnosis must account for the one-year rule. Assets contributed by the healthy spouse less than a year before the ill spouse’s death may not receive the step-up if those assets pass back to the healthy spouse.

What Happens After the First Spouse’s Death

When the first spouse dies, the JEST divides into two shares. The deceased spouse’s share funds a credit shelter trust (CST-A). The surviving spouse’s share either remains in a continuing trust or is distributed outright, depending on the trust’s terms.

The CST-A holds assets from both spouses—the deceased spouse’s original assets and the surviving spouse’s assets that were subject to the deceased spouse’s general power of appointment. All assets in the CST-A receive the basis step-up because they are treated as acquired from the decedent.

The surviving spouse can be a beneficiary of the CST-A, receiving distributions for health, education, maintenance, and support. But the surviving spouse does not own the CST-A assets. This creates two distinct benefits.

Creditor protection. The CST-A is irrevocable after the first death. A creditor of the surviving spouse cannot reach assets inside it because the surviving spouse is a beneficiary, not an owner. A spendthrift trust provision in the CST-A prevents creditors from attaching the surviving spouse’s beneficial interest. This protection does not exist in a standard joint trust or a TBE trust after the first spouse dies.

Next spouse protection. If the surviving spouse remarries, the CST-A assets are not subject to equitable distribution in a subsequent divorce. The new spouse has no claim to assets held in an irrevocable trust that was funded before the second marriage. A standard joint trust that distributes assets outright to the surviving spouse offers no such protection.

Advantages Over Other Joint Trust Structures

A standard joint revocable trust achieves probate avoidance and simplifies administration but provides only a half step-up at the first death and no creditor or next-spouse protection for the surviving spouse.

A TBE trust preserves tenancy by the entirety creditor protection during both spouses’ lifetimes. This makes it the strongest creditor protection option while both spouses are alive. But a TBE trust provides only a half step-up at the first death, and TBE protection dissolves when the first spouse dies. After that point, the surviving spouse holds the assets without either TBE protection or CST-A creditor protection.

A Florida community property trust achieves the same full step-up as a JEST through a different mechanism—community property treatment under IRC § 1014(b)(6). The CPT is simpler to administer and has lower ongoing complexity. But the CPT exposes each spouse’s half to that spouse’s individual creditors during life, and the IRS has not confirmed that opt-in community property qualifies for the federal step-up.

The JEST’s advantage is that it combines the full step-up with post-death creditor protection and next-spouse protection. Its disadvantage is complexity. The CST-A funding mechanics, the general power of appointment structure, and the QTIP trust coordination require sophisticated drafting and administration.

Disadvantages and Limitations

The JEST is not a simple trust. The drafting is technical, the funding sequence matters, and the post-death administration requires careful attention to the CST-A split.

Complexity

The trust agreement must create reciprocal general powers of appointment, define the CST-A funding formula, and coordinate with QTIP trust provisions if the estate plan uses a marital deduction trust alongside the credit shelter trust. Mistakes in drafting can produce unintended estate tax consequences or fail to achieve the step-up.

IRS Uncertainty

The 1993 TAMs and 2001/2002 PLRs support the JEST technique, but private letter rulings cannot be cited as precedent by other taxpayers. The IRS could change its position. No published revenue ruling or court decision directly addresses the JEST structure. Practitioners rely on the consistency of the IRS’s private guidance and the underlying statutory logic.

During-Lifetime Creditor Exposure

While both spouses are alive, the JEST is a revocable trust. Either spouse can revoke their portion. A creditor of either spouse can reach the assets because a revocable trust provides no creditor protection. The creditor protection advantage activates only after the first spouse’s death when the CST-A becomes irrevocable. Couples who need creditor protection while both spouses are alive should consider TBE ownership for those assets instead.

Cost

A JEST requires more legal work than a standard joint trust or a CPT. The trust agreement is longer and more technical. The post-death administration requires a knowledgeable trustee or trust administrator who understands the CST-A funding sequence.

When a JEST Makes Sense

A JEST fits best when a married couple holds substantial appreciated assets, wants the full basis step-up, and expects one spouse to outlive the other by years or decades. The post-death creditor protection and next-spouse protection are most valuable when the surviving spouse will hold assets for a long period, may face future litigation or creditor claims, or may remarry.

A couple whose primary concern is creditor protection while both spouses are alive is better served by TBE ownership or an offshore trust for liquid assets above the exemption thresholds. A couple that wants a simpler path to the full step-up and is comfortable with the IRS uncertainty may prefer a community property trust.

The JEST occupies a specific niche: maximum tax efficiency combined with post-death creditor protection and next-spouse protection, at the cost of higher complexity. For couples who fit that profile, no other single structure delivers all three.