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Estate Tax “Portability” Trap

Nothing is easy when dealing with the Internal Revenue Service (IRS). Even situations that seems straightforward or streamlined invariably involve developing complications that present headaches to taxpayers. Our New York estate planning attorneys know that this bears out in many planning issues.

Take, for example, the estate tax. As helpfully explained in a recent Wall Street Journal story, if not careful estate executors may cause spouses to miss out on millions in estate tax exemptions. This June the IRS intended to help families by streamlining the process for receiving the exemption. The new guidance sought to fix the complications caused by one spouse leaving all their assets to the other. Each spouse has a $5.12 million exemption individually, but when leaving assets to one another one of those exemptions was oftenlost. The new rules clarify the “portability” of the exemption from one spouse to another. In the past, various trusts were needed to get around this problem.

Yet, the new portability of the exemption does not mean that nothing need be done after a death to take advantage of the spouse’s exemptions. An estate tax return must be filed within nine months of the partner’s death to receive the benefit. Many executors may be under the mistaken impression that the return does not need to be filed. Failure to complete this step may be the difference between sheltering $5 million from the tax instead of over $10 million. Estate planning lawyers appreciate that this is no small error–literally millions of dollars might go to Uncle Sam which would have stayed with a family.

Many argue that those most affected are likely to be executors for those with farms or small businesses. Without the help of professionals with estate tax experience, the paperwork may not be filed correctly, resulting in serious problems for the families involved. To ensure your advisors takes account of this in our area, be sure to contact New York estate planning lawyer with experience dealing with these issues.

Some might decide to avoid push off this concern because of the current state of limbo with the estate tax. It is true that current exemption levels and tax rates are set to end at the end of the year. However, most believe that these new rules will apply no matter what the estate tax situation. In other words, it will remain crucial for to be aware of this trap when a spouse passes on.

See Our Related Blog Posts:

Senate Democrats Drop Estate Tax Plan

Yet Another Call for Use of the Gift Tax Exemption Before Its Too Late

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