If you have $11.4 million in assets or $22.8 million as a couple, then you need to be concerned with the federal estate tax. Otherwise, there are other issues that should be taken into consideration, according to The Times Herald in “Federal estate tax and portability considerations.”
Individuals and couples with significant assets are advised to have an estate plan created by an estate planning attorney with experience working with people with large assets There are numerous tools that are used to minimize the federal tax liability.
However, when one spouse dies, it is generally recommended that the surviving spouse file a Federal Estate Tax return for reasons of portability. That is because when the first spouse dies, they use a portion of the Federal Estate Tax exemption, but there’s usually a portion available for the surviving spouse.
If IRS Form 706 is filed in a timely manner, the surviving spouse can “port over” or protect the remaining amount of Federal Estate Tax exemption that the deceased spouse has not used. This return needs to be filed within nine months of the date of death, although the surviving spouse can obtain an extension.
No tax will be owed, since the return is filed merely for reporting purposes. The assets in the entire estate must be reported, including everything the person owned. That may be cash, securities, real estate, insurance, trusts, annuities, business interests, and other assets. It should be noted that this will likely include probate as well as non-probate property. Appraisals and significant documentation are not usually required on a return just for portability purposes.
Why does a return need to be filed to claim the unused exemption if no taxes are going to be paid? For one thing, the law may change and if the Federal Estate Tax exemption amount is reduced in the future, the surviving spouse will have protected their additional exemption amounts for his or her heirs. If the surviving spouse remarries and acquires significant assets, they will need proof of their exemption. The surviving spouse might own land or other property that increases dramatically in value. The surviving spouse may also inherit a large amount of assets.
Completing an IRS Form 706 for portability is not a complex task, but it should be done in conjunction with settling the estate. Settling the estate should be done with the help of an estate planning attorney to be sure any tax issues are dealt with properly.
Reference: The Times Herald (July 7, 2019) “Federal estate tax and portability considerations”
