The estate tax exclusion or exemption is the amount that can be transferred before the estate tax would be applied. There is no tax on asset transfers between citizen spouses, but you would have to use a portion of your estate tax exclusion to leave tax-free inheritances to others.
In 2016, the estate tax exclusion will be $5.45 million after the Internal Revenue Service applies an inflation adjustment. This represents a $20,000 increase over the 2015 exclusion.
Portability
A legislative measure was passed at the end of 2010 that set the exclusion at $5 million for 2011 and 2012. A subsequent piece of legislation called the American Taxpayer Relief Act of 2012 made the inflation-adjusted $5 million exclusion permanent.
Prior to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the estate tax exclusion was not portable. In this context, the term “portability” is used to define a surviving spouse’s right to use the exclusion that was allotted to his or her deceased spouse.
In many if not most cases, each partner contributed to the accumulation of the wealth that would comprise an estate. Since this is the case, why should a surviving spouse have just one exclusion to apply to wealth that was accumulated by two different American taxpayers?
The matter of portability has always been controversial, and when the tax relief act was passed at the end of 2010, portability was finally granted, and it became permanent after the enactment of the American Taxpayer Relief Act of 2012. Now, a surviving spouse can utilize two exclusions.
Portability is not automatically granted by the Internal Revenue Service. You have to opt for portability, and this is done through the filing of IRS Form 706. To elect portability, a representative of the estate must file this form within nine months of the decedent’s passing. If more time is needed, the Internal Revenue Service could be petitioned to grant a six-month extension.
January Will Be a Busy Month!
Our firm provides educational opportunities to people in the greater Indianapolis area on an ongoing basis. We are going to start off the new year in a big way with a busy seminar schedule in January.
There are going to be many different opportunities, so you can certainly find a seminar that will fit into your schedule.
These seminars will focus on the value of revocable living trusts. A revocable living trust can be the ideal choice for a wide range of people, and you do not have to be extraordinarily wealthy to realize the benefits.
Though the seminars are free to attend, we do ask that you register in advance so that we can reserve your seat. To see the complete schedule, visit this page: Indianapolis IN Living Trust Seminars.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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