No. of Recommendations: 5
Some U.S. METARs may have large enough estates to be subject to federal estate tax. This article discusses federal tax but neglects to mention state estate tax which may be significant.
wsj.com - Estate taxes portability planning mistakes
The Estate Tax Mistake That Can Cost Families Millions
One family ended up with an extra tax bill of $1.5 million, and now estate lawyers are on edge
By Ashlea Ebeling, The Wall Street Journal
...
The Tax Court sided with the IRS last month, disallowing the estate from using the common planning technique known as portability.
That lets a surviving spouse use any leftover exclusion amount from the first spouse to die—as long as the estate filed a return and filled it out properly. The trouble is, often no one checks the work until the second spouse dies. At that point, it can be too late to fix any mistakes...
The message to wealthy families is that obtaining the doubled estate tax shelter for married couples isn’t automatic. ...
In general, there is no requirement to file an estate-tax return when the first spouse dies if the estate isn’t above the threshold. The estate-tax threshold is $13.99 million per person this year. It is $15 million per person for 2026 deaths, and indexed for inflation after that. When one spouse dies, the partner often inherits all or part of the deceased person’s estate. The surviving spouse receives those funds tax-free. The survivor can also carry over the deceased’s unused estate-tax exclusion, so the survivor’s estate gets a bigger tax shelter....
For those with estates worth $15 million to $30 million, it generally makes sense to file an estate-tax return when the first spouse dies to elect portability....The estate tax must list the assets, including real estate and shares of a family businesses, and must spell out the values of each asset...[end quote]
The fine print of the estate plan (will and/or trust) should include verbiage that the intent is to reduce total taxes,
including state estate tax. The taxable estate limit in a state may be much lower than the federal limit.
A
credit shelter trust can be used to shelter part of the estate from state estate tax. This should be written into the revocable living trust/ marital trust so the trustee is instructed to set up the credit shelter trust before filing the tax returns.
Wendy
