Double Step-Up in Basis Helps Louisiana Families Save Taxes at Death

The traditional married couple estate plan often was established in a way through their Last Wills or the Revocable Living Trust so that when the first spouse died, that spouse's share of the assets would go to an irrevocable trust, whereby the surviving spouse is often the trustee and income beneficiary of the irrevocable trust, and the deceased spouse's children are the principal beneficiaries of this irrevocable trust. The reason many estate plans were established this way was for estate tax avoidance - so that the assets of the deceased spouse (in the irrevocable trust after the first spouse dies) would not be included in the taxable estate (for federal estate tax purposes) of the surviving spouse.

But with the Estate Tax Exclusion Amount now $5.45 million - which is in theory $10.9 million for married couples. It is often irrelevant whether the assets of the first spouse to die get lumped into the surviving spouse's estate for federal estate tax purposes.

Example: Mom and Dad have a combined estate of $3 million - each owns half. Dad dies and structures his estate planning legal program in a way so that his entire $1.5 million estate gets lumped into Mom's estate, so that after Dad dies, Mom has the entire $3 million of assets in her taxable estate. But even if the $3 million in Mom's estate appreciates in value to $4 million prior to when Mom dies, there will be no estate tax when Mom dies because her estate was valued at less than $5.45 million.

The above example assumes that a portability election was not filed on Dad's estate tax return when he died. In fact there was no estate tax return filed after Dad died at all. Had they filed a Form 706 after Dad died and elected portability, Mom's estate would have been able to shield much more than $5.45 million from estate tax when she die.

So, since Mom and Dad don't have estate tax concerns, it would be great for the kids (and not so great for Uncle Sam and the IRS) if there is not only a step-up in basis of the estate when Dad dies, but also another step-up in basis of the entire estate when Mom dies - to eliminate there EVER being capital gains tax on any appreciation from when items were purchased to the date that Mom dies. If the executor, or the trustee, or the kids sell these appreciated assets shortly after Mom dies, they will get all of the proceeds of these sales completely tax-free thanks to the double step-up in basis that occurred at each parent's death.

Estate planning these days involves so much more than just writing a Will or trust or power of attorney. You can save your spouse, your kids, and your loved ones significant taxes - even if you don't have a "taxable estate."