How can I eliminate capital gains tax for my surviving spouse?

Hi, I’m an estate planning attorney here at Carpenter and Lewis in Knoxville, Tennessee. If you’re married and own appreciated assets like real estate or stocks that have increased in value over time, there’s a powerful way to eliminate the tax on capital gains. Let me show you how. Normally, when one spouse passes the IRS lets the surviving spouse reset half of the cost basis of jointly owned assets to the current market value at the date of death. This is called a step up in basis, and it can wipe out a big chunk of capital gains tax but in Tennessee, we can go further, thanks to a unique state law. Tennessee allows for community property trusts, and if you put your assets into one, both spouses halves receive a full step up in basis. When one spouse passes away, this is double the step-up just by using this type of trust. That means 100% of the gain is eliminated, not just half, and the surviving spouse can sell property, including stocks or a rental property immediately, with no capital gains tax. No matter how large the gain might be, your spouse can sell it after your death and not pay tax. But be careful. You want to avoid certain actions, and these trusts do have implications if you later get divorced. Also, you shouldn’t delay funding your trust, because the law only helps if assets are titled correctly in the trust at the time when the first spouse passes away. Don’t forget to have a formal valuation done at the time of the first spouse’s passing and you need to know that a community property trust is not the only way to accomplish this, but it is the easiest way for a married couple to take advantage of this tax benefit. Tennessee is one of the states where a community property trust is even possible, and this type of trust can save your family thousands. Want to see if it fits your situation, we’d be glad to help.