January 11, 2013
Married Couple's Estate Planning Guide
For married couples, the passage of the fiscal cliff bill, also known as the American Taxpayer Relief Tax Act of 2012 (ATRA), brought good news. For one, both the portability provision and the marital deduction were made permanent by ATRA. Unfortunately for some, the provision only helps taxpayers that passed away after December 31, 2010 and does not apply to same-sex married couples or if the surviving spouse is not an United States citizen. What is important to remember about portability is that the process is not automatic. The executor that is managing the estate must transfer the unused portion of the decedent's lifetime gift and estate tax exemption to the surviving spouse. The executor must file "an estate tax return when the first spouse dies." A taxpayer must take into account several different aspects of the portability provision. First, the portable amount is not adjusted for inflation. Second, it does not apply to the exemption for GST taxes. Finally, the usefulness of the portability exemption does not replace the usefulness of a bypass trust.
An additional important aspect of portability occurs when the surviving spouse remarries. If a surviving spouse takes the exemption of their first spouse and remarries, they are not allowed to hold on to their first spouse's exemption if their second spouse passes away before them. The surviving spouse is only allowed to take the unused exemption of their second spouse.
See Deborah L. Jacobs, A Married Couple's Guide To Estate Planning, Forbes, Jan. 9, 2013.
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Unfortunately the concept of portability has not made its way into the various state estate tax codes. Let us hope for progress on this front.
Posted by: brian j. cohan | Jan 11, 2013 7:26:16 AM
Characteristically, my ADHD has made it impossible for me to string together a couple of thoughts, except this one came to me at 3 oclock in the morning, in the form of a cold sweat, and a strong desire to jump from great heights, preferably into a canyon, and here is the fine point of it....as has been well discussed here the concept of portability is here to stay, and that is a good thing (except for us estate lawyers). My concern and question is....is it not now potentially malpractice not to file a 706 on perhaps each and every decedent's estate....and here is why. Let us say spouse #1 dies, with a (for FET purposes) relatively modest estate...a million or three. Everything is in a nice joint trust, so you tell the bereaved to file the will, and relax. You don't file an FET claiming DUSE. Time goes by...perhaps a large amount of time, and spouse's estate grows and grows, to an amount to well over and above the exemption equivalent. Heirs hear that practically "no one" pays estate tax and at 45 points plus state are none too happy and start looking for someone to blame....and that someone is me, with a certainly tolled malpractice period looking at me in the face while I am trying to live out the remainder of my years in as much peace as possible. Am I insane? Is it 706's for all?
Posted by: brian j. cohan | Jan 13, 2013 9:00:26 AM