If you are currently married with significant assets, you and your spouse have a very limited time to save a lot of money, because after that it’s very likely that Congress will change the rules now in existence and make dying much tougher on your loved ones in terms of federal estate taxes. That is, of course, unless you take this moment . . . right . . . now . . . to do some very creative planning that will lock in what’s called spousal portability.
What is Spousal Portability?
Portability is the ability to pass one’s unused estate tax exemption to his or her spouse upon death. It works like this:
The current estate tax exemption (at least until 2013) is $5 million. That means that if you die with less than $5 million, you pay no estate taxes. Five million is a pretty high number, so this exemption is very favorable. It gets even better. Since each spouse in a marriage has a $5 million exemption, the total exemption available to the couple is $10 million. If one spouse dies and has an estate valued at only $3 million, the unused exemption ($5 million – $3 million = $2 million) “ports” to the surviving spouse. He or she can now leave an estate of up to $7 million without incurring any estate taxes.
Portability Hasn’t Always Been The Rule . . . And It Could Very Easily Go Away
The benefits of estate tax exemption portability are obvious. In short, it means that even with little or no estate tax planning, a couple can very likely get away without paying any federal estate taxes (though without planning, your heirs will have to go through a lengthy and expensive probate process). All of these benefits will likely disappear in 2013, when it looks like the estate tax exemption will be reduced to $1 million and portability could very well disappear.
That means you have two choices if you want to take advantage of current laws: Do some planning that permanently takes advantage of the current $5 million portable exemption before it disappears, or plan for you and your spouse to die before 2013 (not the best option!).
There are a number of estate planning tools that allow for married couples to take advantage of the current estate tax laws without dying, and that’s our preferred method of operation. Of course, if you’re below the threshold of $5 million (or $10 million for married couples), you still need an estate plan that will allow your loved ones to avoid lengthy and expensive probate court proceedings.
A little bit of planning can go a very long way, and there has never been a better time to put a plan in place. It could literally be the difference between being taxed on millions of dollars and letting those dollars pass to your loved ones 100% tax free.
Understanding What You Need
That’s what we do best. Our estate plans are customized to meet your needs. Whether that means setting up a complicated network of trusts to avoid taxes or a more simplified plan designed to avoid probate, we have you covered from A to Z. And we want to get to know you. We share a wonderful sense of community with our clients, and it’s our goal to help you plan today so that nobody has to worry tomorrow.
Call our office today and schedule a FREE Family Wealth Planning Session™. Just mention this article by name, and we will waive our customary $750 fee. You literally have nothing to lose . . . except for all that money you could potentially spend on estate taxes if you don’t call us!