Estate Tax Exemption Increases to $5.34 Million for 2014

by Harley K. Look, Jr.

The estate tax exemption is $5.34 million for 2014.  If your personal representative timely files a proper estate tax return, the surviving spouse may preserve the deceased spouse’s unused tax credit. This is called portability and for now it is permanent.  In other words, with portability, married couples can shelter a combined $10.68 million. While estate taxes may not currently be an issue for many Americans, there is still a vital need for estate planning, and for those with trusts, you may simply want to amend your trusts, but not abandon them.  There are still nontax benefits to maintaining your trusts such as protecting your heirs, making sure they get what’s left instead of predators and creditors, providing for a fair and equitable distribution among all of your beneficiaries rather than only the surviving spouse’s next of kin, protecting assets in the case of remarriage by the surviving spouse, probate avoidance, and management of assets in the event of mental incapacity. You cannot rely on portability to shelter any excess over the estate tax exemption if for instance there is a divorce, because portability works only if there is a surviving spouse. Even with portability, there is also the risk that if one of you passes away, and the personal representative files for portability, the statute of limitations will remain open to allow the IRS to determine the deceased spouse’s unused exclusion amount available for use by the surviving spouse. If the surviving spouse remarries and the new spouse also passes away, the surviving spouse is limited to the unused exclusion of the last such deceased spouse.  Remember that life insurance is income tax free to the recipients, but the death benefit is still taxable for estate tax purposes in your estate, unless you properly place the insurance into an Irrevocable Life Insurance Trust (“ILIT”) or consider additional planning to address taxes on the excess. There is still a three year waiting period after you transfer your existing insurance into an ILIT before it is out of your taxable estate.  New insurance properly structured under which the ILIT is the applicant, owner and beneficiary is out of the taxable estate without having to wait for three years. The estate tax laws are subject to change, and while there are currently no further fiscal cliffs, sequesters, or pending legislation that would reduce the exemption or change portability, both tax and nontax issues must still be considered. If you have any questions about taxes or other issues, please feel free to give us a call or schedule a meeting. It will be our pleasure to help you!

We periodically contact our clients to apprise them of certain issues that may impact them.  Estate planning and tax issues are most commonly addressed, but an integral part of estate planning that doesn’t receive as much attention is family business succession planning.


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