Overlooked Estate Strategy For Married People
As a high net worth estate planning lawyer can explain, estate planning is a crucial step for married couples who want to ensure their assets are passed on smoothly and efficiently. While there are many strategies to consider, one often overlooked option is electing portability of unused estate tax exemption. This strategy can offer significant benefits for couples, providing peace of mind and financial security for their loved ones.
Understanding Estate Tax Exemption
First, let’s break down what estate tax exemption means. In 2024, the federal estate tax exemption amount is $13.61 million per individual. This means that if a person’s estate is worth less than $13.61 million at the time of their death, it won’t be subject to federal estate taxes. For married couples, this amount can potentially double to $27.22 million, but only if they elect portability of the unused estate tax exemption.
What Is Portability?
Portability allows a surviving spouse to inherit the unused portion of their deceased spouse’s estate tax exemption. For example, if one spouse passes away and uses only $5 million of their $13.61 million exemption, the remaining $8.61 million can be transferred to the surviving spouse. This added exemption can be incredibly valuable, especially for couples with substantial assets.
Why Portability Is Overlooked
Despite its benefits, portability is often overlooked for several reasons as our friends at Stuart Green Law, PLLC can share. One major reason is a lack of awareness. Many couples simply don’t know that this option exists. Additionally, some might think that they don’t need to worry about estate taxes because they believe their assets won’t exceed the exemption amount. However, it’s important to consider future growth of assets, inflation, and changes in tax laws, which could impact the value of an estate.
How To Elect Portability
Electing portability is not automatic; it requires specific steps to be taken. Here’s how couples can ensure they benefit from this strategy:
1. File An Estate Tax Return: The surviving spouse must file an estate tax return (Form 706) for the deceased spouse, even if no taxes are owed. This form must be filed within nine months of the spouse’s death, with a possible six-month extension.
2. Indicate Portability Election: On the estate tax return, there must be a clear indication that the surviving spouse is electing portability of the unused exemption.
3. Keep Records: It’s crucial to maintain detailed records of the deceased spouse’s estate and the election of portability. This will be important for future reference and potential audits.
Benefits Of Electing Portability
There are several key benefits to electing portability of the unused estate tax exemption:
1. Increased Exemption Amount: By combining both exemptions, the surviving spouse can potentially shield up to $27.22 million from estate taxes.
2. Flexibility For Future Planning: Portability provides more flexibility in future estate planning, allowing the surviving spouse to make informed decisions about their assets.
3. Peace Of Mind: Knowing that a significant portion of the estate will be protected from taxes can provide peace of mind for the surviving spouse and their beneficiaries.
Real-Life Example
Consider a married couple, John and Mary. John passes away in 2024, leaving an estate worth $10 million. Mary, as the surviving spouse, can elect portability of John’s unused estate tax exemption. Since John only used $10 million of his $13.61 million exemption, Mary can add the remaining $3.61 million to her own exemption. This means Mary now has an estate tax exemption of $17.22 million, providing her with significant tax savings and flexibility for her future estate planning.
Electing portability of unused estate tax exemption is a powerful yet often overlooked strategy for married couples. By taking advantage of this option, couples can ensure that their hard-earned assets are protected from hefty estate taxes, providing financial security for their loved ones. It’s essential for couples to be proactive in their estate planning, stay informed about their options, and seek professional advice to make the most of their exemptions. In 2024, don’t let this valuable strategy slip through the cracks — consider portability as a key component of your estate plan. Contact a lawyer near you to get started on your estate planning.
