There is a federal estate tax exclusion that exists as the line in the sand that divides the people who are exposed to the tax from those who are exempt. If the value of your estate does not exceed the amount of this exclusion, you are exempt from the estate tax.
During the current calendar year, the estate tax exclusion stands at $5.43 million. The portion of your estate that exceeds this amount would potentially be subject to the estate tax when it is transferred.
This $5.43 million is a per person estate tax exclusion. As a result, if you are married, you have a $5.43 million exclusion, and your spouse has his or her own exclusion. The total exclusion using the figure that is in place for 2015 would be $10.86 million.
The above raises an interesting question: After you die, will your spouse still have two exclusions to utilize? The answer is yes, and this is the matter of portability.
Prior to the 2011 calendar year, the estate tax exclusion was not portable. A surviving spouse could not use the exclusion that was afforded to his or her deceased spouse. At the end of 2010, a tax relief act was passed that made the exclusion portable for 2011 and 2012.
Another tax relief act was passed at the end of 2012 called the Taxpayer Relief Act of 2012. This is the legislative measure that allowed us to avert the so-called “fiscal cliff.” A provision contained within this act made the portability of the estate tax exclusion permanent.
Though a surviving spouse can use the exclusion that was allotted to his or her deceased spouse, the portability is not automatically granted by the Internal Revenue Service. You have to opt for portability by filing Internal Revenue Service Form 706. A representative of the estate must submit this form within nine months of the passing of the decedent, but you could request an extension if more time is needed.
Unlimited Marital Deduction
To fully understand the relationship between spouses when it comes to the estate tax, you should be aware of the fact that there is an unlimited marital estate tax deduction. You can transfer unlimited assets to your spouse free of taxation, as long as your spouse is an American citizen.
Estate Tax Report
Though the federal estate tax is not a factor for most people, it can loom large for high net worth individuals. You should understand all of the facts so that you can act in a fully informed manner if you are exposed.
We have prepared an in-depth special report on the federal estate tax. This report is free, and you can access your copy through this website.
To get your copy of the report, click this link and follow the simple instructions: Free Report on Federal Estate Tax.
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