The estate tax exclusion or exemption is the amount of property that can be transferred before the federal estate tax would become applicable. Most people are not in possession of property that exceeds the amount of the exclusion so the majority of American families will not be exposed to the federal estate tax as the laws currently stand.
However, if you are exposed to this death tax, your legacy can take a heavy hit if you do not take steps in advance to position your assets in a tax efficient manner. The maximum rate of the federal estate tax is an attention-getting 40 percent so a very significant portion of what you have earned could wind up in the hands of the tax man.
During the current calendar year, the federal estate tax exclusion is $5.45 million. Last year the exclusion was $5.43 million, but there are annual adjustments to account for inflation.
This is the amount that you can transfer before the estate tax would kick in, but there is one exception. If you and your spouse are American citizens, you could transfer unlimited assets to your spouse free of the federal death tax through the utilization of the unlimited marital deduction.
Portability
Each American citizen is allotted this $5.45 million federal estate tax exclusion. Until 2011, the estate tax exclusion was not portable between spouses. “Portability” is the ability of a surviving spouse to use the exclusion that his or her spouse was entitled to. Up until that year, the surviving spouse had just one exclusion to utilize.
A legislative measure called the Tax Relief, Unemareployment Insurance Reauthorization, and Job Creation Act of 2010 made the exclusion portable, and portability was extended by the American Taxpayer Relief Act of 2012. Provisions contained within this measure made the portability of the estate tax exclusion permanent so a surviving spouse has two exclusions to apply to his or her estate.
To opt for portability, a representative of the estate must file Internal Revenue Service Form 706. The deadline for filing this form is nine months after the passing of the decedent question, but it is possible to petition the IRS to grant a six-month extension. Portability is one of a number of tools available to minimize estate taxes, depending on an individual’s circumstances.
Download Our Special Report
We have prepared an in-depth special report on the federal estate tax. If the value of your estate exceeds the amount of the exclusion, you should certainly take the time to digest the information that is contained within this report.
There is no charge for the report, and you can get your copy through this website. Click this link to access the report: Free Special Report on the Federal Estate Tax.
John’s practice focuses on the use of Wills and Living Trusts in Estate Planning to help individuals protect their families and preserve their legacies after their deaths, but his practice also focuses on the critical issues of protecting individuals with dementia or other diminished capacity, assisting individuals in qualifying for Medicaid and other government benefits to offset the costs of long-term care, and providing special needs planning.
John is admitted to practice law in North Carolina, South Carolina, Kentucky, and Ohio, and he is accredited by the Department of Veterans Affairs.
- What You Need to Know about the Medicaid Look-Back Rule - January 3, 2023
- How to Pass Down Your Legacy in Your Estate Plan - October 3, 2022
- Practical Steps to Take after Receiving a Terminal Diagnosis - September 30, 2022
