Estate Tax Portability: What to Know

High net worth married couples who may owe federal estate taxes when the second spouse passes away, could tap into a strategy known as portability, which was recently improved on behalf of couples by the IRS. Even though a spouse could inherit all of their partner’s assets tax free, estate taxes could potentially be owed by the beneficiaries of the surviving spouse’s estate when that person passes away. This depends on the total value of the surviving spouse’s estate.

In 2022, however, there is a $12.06 million exemption for each individual person for estate and gift taxes, meaning that there are no federal taxes due for giving away up to $12.06 million or less to non-spouse beneficiaries or your children during life or after you pass away. However, your loved ones could pay as much as 40% estate taxes on anything above that. Electing portability is one strategy for high net worth married couples to have their partner’s unused exemption along with their own.

This means that a couple could give $12.12 million before estate taxes kick in. Previously, surviving spouses only had two years from the date of their partner’s passing to elect portability, but a new IRS change extends that deadline to five years. If you are within the five year window, you will not have to get guidance from the IRS through what is known as a private letter ruling.

Instead, you can file an estate tax return and elect portability, which is a simple strategy that makes it very easy to accomplish these goals. For more information about how to approach this process, set aside time to meet with an experienced estate planning lawyer and discuss whether portability makes sense for you. To make the most of your full estate plan, it’s strongly recommended that you work with a qualified attorney in Pasadena.

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