Estate Planning For The Long Run

Estate Planning For The Long Run

Estate and Gift Tax Exemptions: Portability and Form 706

November 8, 2013


With the year end fast approaching, there is no time to waste for those who want to take advantage of the current estate and gift tax exemptions. There is a current exemption for both estate and gift taxes of $5.12 million for each person and a maximum 35% estate tax rate. These amounts are set to expire at the end of 2012. Although we do not know what will happen until after the election, we do know that if Congress does nothing, the exemptions will revert back to $1 million and the maximum estate tax rate will go back up to 55%. Congress may extend the current exemptions, or they may decrease the exemptions to a lower amount. It is almost certain they will not increase. Thus, it is important to act now if you have a large estate and/or want to make substantial gifts before the year ends.

One thing to keep in mind is the portability of the current estate and gift tax exemptions. Portability means that the unused portions of a deceased spouse’s exemptions transfer to the surviving spouse. For example, if one spouse dies and has not used any of her gifting exemption, then the entire amount transfers to the surviving spouse, in addition to the surviving spouse’s unused exemption. In other words, a surviving spouse can have up to $10.24 million of exemptions, instead of the normal $5.12 million! However, in order to use this portability, you must timely file a Form 706, upon the death of a spouse.

The Form 706 must be filed for any estate wanting to use the portable exemption – even estates that are nontaxable, or that do not exceed $5.12 million for 2012. The Form 706 has a new section that will allow you to take advantage of the portable exemption. If your spouse has recently deceased, and you want to make sure you get the benefit of the portable exemption, then you must act promptly to file the Form 706. Here is a link to Form 706 on the IRS website. Please contact us if we can help you with any of these matters.