Estate Tax News!

The IRS has announced that the estate tax exclusion amount for the estate of those passing away in 2015 will be $5.43 million compared to $5.34 million in 2014. The lifetime tax exclusion also rises to $5.43 million, but the annual gift tax exclusion remains at $14,000.00.   Remember, this only applies to estate tax. There are no exclusions for gifts made within 5 years under the Medicaid rules.

Two More Good Reasons to Plan Your Estate

As noted in our previous post, people often ask about why it is important to have an estate plan. Here are two more good reasons:

• Allows you to protect yourself and your loved ones in the event you become disabled. Without powers of attorney for financial matters and health care, if you become disabled, your loved ones will be dealing with the courts, which is costly, time consuming and stressful.
  
• Save your heirs taxes, time in settling your affairs, surety insurance premiums and legal and accounting costs. Did you know that the tax rate for accumulation trusts has increased significantly under recent changes to our tax laws and particularly under Obamacare? It is important that if you have a trust that you have it reviewed to ensure that the income is distributed, not accumulated.

Impact of American Taxpayer's Relief Act (ATRA)... "Portability"

One of the most significant changes associated with The American Taxpayer's Relief Act (ATRA) is that the "portability" of the federal estate tax exemption between married couples has become permanent and inflation-adjustable. 

While this is generally good news for married people (in 2013, a married couple can pass on up to $10.5 million to their heirs free from federal estate taxes), there are potential complications in situations involving second or third marriages.

Surviving spouses might also be required to file certain IRS forms, or run the risk of losing the deceased spouse's exemption.

A Fundamental of Estate Planning

A fundamental of estate planning has to do with the portability of the estate tax exemption. This means that if the first spouse dies and doesn't use all of his or her federal exemption for estate taxes that the surviving spouse can add the unused estate tax exemption of the deceased spouse to their own exemption, allowing spouses together to transfer up to $10 million tax free.

However, it is important to note that portability is not automatic. To get it, the executor of the first spouse who died must file an estate tax return, even if no estate taxes are due. The safest course for most people is to review their situation with an attorney to make sure portability options are maximized.