You should brace yourself for possible taxation when you are devising your estate plan. There are those who are under the impression that the estate tax is only a factor for extremely wealthy people, but this will depend upon your perspective.
When you are inventorying your assets to determine your estate tax position, you have to understand the fact that everything that you own personally counts, even your home. We practice law in northern California. Throughout this region, real estate can be extremely valuable, so you have to take this into account.
There is an unlimited marital deduction that allows you to transfer unlimited assets to your spouse tax-free, as long as your spouse is an American citizen. You could apply the federal estate tax credit or exclusion to transfer assets to others in a tax-free manner.
At the current time, the federal estate tax exclusion is $5.43 million. There can be annual adjustments to account for inflation, so the figure has been rising slightly year-by-year. The top rate of the federal estate tax is 40 percent.
Federal Estate Tax Portability
Each person is allotted this $5.43 million federal estate tax exclusion. As a result, if you are married, you have an exclusion, and your spouse has his or her own exclusion.
Until 2011, the federal estate tax exclusion was not portable between spouses. Portability is a legal term that describes the ability of a surviving spouse to use the exclusion that was afforded to his or her deceased spouse.
This lack of portability did not seem fair to many people. Two different individuals contributed to the family wealth, so why should there be just one exclusion that can be utilized after the death of one spouse?
After the enactment of a piece of legislation that was passed at the end of 2010, the exclusion was made portable for 2011 and 2012. A subsequent tax act was passed at the end of 2012 that is called the American Taxpayer Relief Act of 2012. Provisions contained within this act made portability of the estate tax exclusion permanent.
Though the estate tax exclusion is portable, there is a step that must be taken to opt for portability. After the death of a spouse, a representative of the estate must file IRS Form 706 to elect portability, and this form should be submitted within nine months of the decedent’s passing.
Schedule a Consultation
If you are concerned about the impact that taxation can have on your estate, you should be aware of the tax efficiency strategies that can be implemented. Our firm offers consultations, and we can get to know you, become apprised of your situation, and make the appropriate recommendations.
To set up an appointment, send us a message through this page: Sacramento CA Estate Planning Attorneys.