portability is that the entire estate on the surviving spouse's death will receive a step up in basis. Receiving a step up in basis on the death of the surviving spouse has the potential for reducing income taxes when assets are sold after the death of the surviving spouse. Another advantage of portability and leaving the entire estate to the surviving spouse in a revocable trust, is that it eliminates the exemption trust and the need to prepare an income tax return each year for the exemption trust. There are situations in which an exemption trust still should be used on the death of the first spouse. For example, if the couple's estate will continue to grow and will likely exceed the combined $10,500,000 exemption of both husband and wife, then an exemption trust is likely to be appropriate. Also, an exemption trust may be appropriate to avoid increases in property taxes as a result of changes in ownership where the couple's real property value exceeds their residence and $1,000,000 of property tax value at the date of the first spouse to die. The use of an exemption trust is still appropriate where there are concerns of protecting assets from creditors, a remarriage by the surviving spouse, or concerns about management of assets by the surviving spouse or other beneficiaries. The exemption trust must still be used to have the benefit of the generation skipping transfer tax exemption for both spouses. As a result of the changes in the estate and gift tax laws by the Act, individuals and couples should review and update their estate plans. |