Understanding Estate Exemption Rules


David L. Garcia, CPA, CFP®, ADPA®

In the beginning of 2013, Congress made the estate tax exemption permanent at $5 million per person, the 2012 rate, but adjusted the amount for inflation each year going forward. For 2016, the estate and gift tax exemption stands at $5.45 million per person. Congress also made another very popular component of the estate tax law, called “portability,” permanent. Portability allows spouses to combine their estate tax exemptions, effectively letting married couples give away or leave almost $10.9 million without owing estate tax.

Couples and their advisors must be diligent in making sure they get the benefits of portability since it is no longer automatic. The IRS recently issued final rules concerning the requirements for electing portability of a deceased spouse’s unused exemption amount. There still exists an unlimited marital deduction which allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. However, to use your late spouse’s unused exemption, you must elect it on the estate tax return of the first spouse to die. This rule applies even if the first spouse doesn’t owe any estate tax. Generally, an estate tax return is due nine months after the date of death. A six-month extension is available if requested prior to the due date. This makes it imperative that high-net-worth people educate themselves on what portability is and how to elect it. Failure to follow the finalized rules may result in considerably higher estate taxes.

Of course, just because the estate exemption was made permanent in 2013 doesn’t mean the government can’t change the law in the future, but the current makeup of Congress makes it unlikely in the short-to-intermediate term. There has been a lot of activity in this area of the law over the last decade, so if you haven’t had your current estate strategy reviewed by your attorney in the last five years, it’s probably time for an estate checkup.

Feel free to contact David Garcia with any questions by phone 305.448.8882 ext. 224 or email: DGarcia@ek-ff.com