How can I properly balance both estate taxes and income taxes when making the portability election?


While the portability election is something new in our state tax code, congress decided when it raised the exemptions to $5.49 million, to also grant to spouses the ability to give or as they call it, port over the deceased spouse’s exemption to the surviving spouse. Whereas normally an exemption would be used by the decedent and if there was excess, it would loss. Now, that excess can be given to the surviving spouse. Portability is best used when clients have assets, normally real estate, stock bond portfolios, which appreciate that they would like receive a second basis increase at the death of the surviving spouse. Any assets that get placed in a bypass credit shelter or exemption trust when the first spouse passes away, will not receive that income tax basis when the survivor dies. Portability allows us to give those capital asset basis, assets the surviving spouse and they will be included in the surviving spouse’s estate at their death and thus, potentially receive a second step up in basis.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.