Proposed California State Estate Tax Fails
Although many thought is would pass, Senate Bill 378 will not be appearing on the 2020 ballot.

Proposed California State Estate Tax Fails

Although many thought is would pass, Senate Bill 378 will not be appearing on the 2020 ballot.

There are currently no California Death Taxes payable by a California resident or by a non-resident who owns property in California. That means, for affected individuals dying in 2019, they are only subject to the Federal Estate Tax if they have in excess of $11.4 million per person ($22.8 million for couples who elect portability or use a credit shelter trust).

Senate Bill 378 attempted to change the law in California to impose a 40% tax on property transferred by gift or at death in excess of $3.5 million per person ($7 million per couple). According to the text of the Bill, the revenue generated by the proposed California Tax would be deposited into a Children’s Wealth and Opportunity Building Fund, funding programs and services that directly address and alleviate socio-economic inequality and build assets among people who have historically lacked them.

The proposed tax would have taken effect in January 2021.

Although the Bill will not be moving forward, an estate tax bill in one form or another can always reappear, which is why it is essential to keep in touch with your estate planning attorney to make sure you are prepared and that your plan is current in light of the latest laws.

Continue Reading
Estate Planning with Alzheimer’s or Other Dementia
It is important to address estate planning issues early, when mental capacity (competence) is hopefully still intact.

Estate Planning with Alzheimer’s or Other Dementia

Estate planning often becomes top of mind when someone is diagnosed with Alzheimer’s or any type of dementia. Over the past year or so, I have spoken for the Alzheimer’s Association three times, and have had to opportunity to speak with several families that have loved ones affected by the disease.

It is important to address estate planning issues early, when mental capacity (competence) is hopefully still intact. According to Kiplinger’s article, Build an Action Plan For Alzheimer’s, we have no way to know how long someone will have the capacity to sign legal documents. If a person is considered too impaired to sign, a court may need to appoint a conservator to oversee the person’s affairs and make decisions on their behalf.

A diagnosis of Alzheimer’s does not mean a person lacks mental capacity to sign estate planning documents such as wills, trusts, powers of attorney, and the like. In fact, in California, according to Probate Code Section 810, all persons are presumed to have capacity to make their own decisions and be responsible for their actions.

In order for a person to lack mental capacity, he or she must have a deficit in one or more mental functions that significantly impairs their ability to understand and appreciate the consequences of their actions with regard to the type of act or decision in question. The deficits include alertness and attention, ability to understand and communicate, issues with thought process such as severely disorganized thinking or delusions, and ability to modulate mood. Frequency, severity, and the duration of periods of impairment are also factors that a court can consider.

The more complex the action or decision, the higher the standard a person must be able to meet in order to be deemed to have capacity as it pertains to that particular action or decision. Below are some specific instances that arise in the context of estate planning.

Contracts, Complex Trusts, and Powers of Attorney Have the Highest Standard for Capacity

Contracts and more complex trust agreements (as opposed to simple trusts) are subject to a higher standard for capacity. According to California Probate Code Section 812, the person must be able to communicate (verbally or otherwise) the decision, and to understand the rights and responsibilities of the decision, the probable consequences (including persons affected) and the risks, benefits, and alternatives.

Powers of Attorney have a standard similar to contracts discussed above, according to California Probate Code Section 4120.

Medical decisions and the ability to give informed consent to treatment are also similar to that required for contracts, and are set forth in California Probate Code Section 813.

Wills and Simple Trusts Have a Lower Standard for Capacity

According to California Probate Code Section 6100.5 and case law, in order to make a will or a relatively simple trust, a person must be able to understand the nature of the testamentary act, and be able to remember and understand their property and relatives. They must also not suffer from a mental disorder that includes delusions or hallucinations that result in them devising their property in a way they would not otherwise do but for the delusion or hallucinations. Therefore, the delusion or hallucination itself is not sufficient to constitute incapacity. The person must also give their property differently than they would otherwise do as a result.

It is very important to work with an experienced estate planning attorney when doing estate planning for a person with Alzheimer’s or other dementia in order to protect the integrity of the estate plan and the best interests of the person.

Continue Reading
IRA Beneficiary Designations and Estate Planning
As part of your integrated estate plan, you should absolutely review your IRA beneficiary designations.

IRA Beneficiary Designations and Estate Planning

If you’re like most people, you opened that IRA many years ago. You may not have any idea who you named as your beneficiary. If you have a copy in your files, there’s something you need to do, says The Mercury News in the article “No beneficiary designation for an IRA? Here’s what can happen.” It’s time to dig into your records and take a look.

As part of opening the IRA, you likely signed what’s called a “custodian’s IRA agreement.” In that document, there are provisions that take over in certain instances. One of them is if you fail to designate a beneficiary. Consider the following examples, if you don’t think this matters:

A major institution has custody of about 10 million IRAs. In every one of their IRAs, there is a provision that says that if the IRA owner has not by the date of their death designated a beneficiary, or if the beneficiary does not outlive the account owner, the IRA’s beneficiary will be the surviving spouse. If there is no surviving spouse, the beneficiary is the decedent’s estate, which means a probate may be required.

This is not an unusual provision. It gives the institution the ability to transfer the IRA when the owner dies, when there is no beneficiary designation on file. Therefore, a married IRA’s account would pass to his or her spouse. The surviving spouse has the option to transfer the IRA into their own IRA.

However, what if that’s not what you want to happen? Or if you are single?

For someone who is single, widowed or divorced, the IRA passes to the person’s estate under this default provision. If you wanted the IRA to be inherited by a niece, nephew, child or grandchild, it’s too bad. What is worse, is when the IRA transfers to an estate, it loses its connection to a person, thereby losing the ability to be stretched out over an extended period of time.

There are other frequently used provisions. One is a provision that distributes the account to the surviving spouse, or if there is no surviving spouse, to the children in equal shares per stirpes, or if there are no children, to the estate. This works better than the first option. However, unless you review your IRA Custodial Agreement, you don’t know what will happen.

What should you do? As part of your overall estate plan, you should absolutely review your IRA beneficiary designations. If you can’t find that information, call the institution that holds your IRA for a copy of what they have on hand. You can also fill out a new beneficiary designation and be certain that the custodian places this paperwork on file and keep a copy of it yourself with your important papers. Otherwise, it’s possible that your updated beneficiary designation wishes may not be followed.

Speak with your estate planning attorney to make sure that all of your documents in your estate plan, including IRA beneficiary designations, are updated.

Reference: The Mercury News (August 12, 2019) “No beneficiary designation for an IRA? Here’s what can happen”

Continue Reading
No-Contest Clauses in California
You can have a will or trust created without a No-Contest clause, but if you want to make it very clear how you feel about anyone challenging your will ,including a No-Contest clause is a good way to do it.

No-Contest Clauses in California

We may enjoy watching courtroom drama in movies, TV and on stage, but when it comes to our own lives, most people will do just about anything to avoid an estate battle. Including a “No Contest” provision in a will or living trust is an attempt to preclude challenges to a person’s wishes, and to give anyone who might be thinking about a trust or estate battle a clear warning against doing so, according to the article “Why courts enforce a ‘No Contest’ clause from The Daily Sentinel.

The simple answer to the question of “why would a court enforce a No-Contest clause” is pretty straightforward. If that’s what you put in the will or trust, that’s what the court wants to have happen.

The fundamental message in a No-Contest clause is that anyone who attempts to contest or oppose the document will give up their share, lose any right or interest to the trust or estate, and will be treated as if they have died before the person who is signing the will or trust.

You can have a will or trust created without a No-Contest clause, but if you want to make it very clear how you feel about anyone challenging your wishes, including a No-Contest clause is a good way to do it.

That said, No-Contest clauses in California are limited in their applicability due to legislation that took effect in 2010.

Under this relatively new California law, No-Contest clauses are only enforced against certain types of contests against protected instruments (documents expressly including the No-Contest clause or documents in existence on the date the document including the No-Contest is signed and that are expressly identified in the No-Contest clause) that became irrevocable after January 1, 2001. According to California Probate Code Section 21311, only the following types of contests will be enforced:

  1. A direct contest alleging the invalidity of a protected instrument (due to forgery; lack of due execution; lack of capacity, menace, fraud or undue influence; or revocation of a will or trust) brought without probable cause. Note: To have probable cause requires that the contesting beneficiary know of facts that would cause a reasonable person to believe his or her challenge will be grated by the court. Also note, challenging the actions of a trustee for how they manage the trust is not a direct contest.
  2. A pleading to challenge the transfer of property on the grounds that it was not the transferor’s property at the time of transfer (but only if the No-Contest clause expressly provides for this application). Note: There is no mention of a need for lack of probable cause here. That means simply filing the pleading and alleging these grounds triggers the No-Contest Clause even if good cause exists.
  3. The filing of a creditor’s claim or prosecution of a legal action based on a creditor’s claim. Meaning, if you file a creditor’s claim alleging the decedent owed you money or property during their lifetime under a contract theory, you trigger the No-Contest clause. Like number 2 above, there is no requirement that the claim lack probable cause. If you simply file a creditor’s claim or take action to prosecute a creditor’s claim against a person who died, be prepared to face the No-Contest clause.

As a practical matter, in order to dissuade someone from challenging a will or trust and  triggering a No-Contest clause, they must actually have something to lose under the will or trust to begin with. Meaning, someone who was disinherited entirely has nothing to lose, other than the attorney fees required to bring the contest (which may be significant and is still a considerable factor, especially if the contestant is unlikely to prevail).

Reference: The Daily Sentinel (August 24, 2019) “Why courts enforce a ‘No Contest’ clause

Continue Reading
Differences Between a Will and a Living Trust
When clients begin the estate planning process, an initial decision to be made is whether to center the plan around a Will, or a Living Trust.

Differences Between a Will and a Living Trust

There are many differences between a Will and a Living Trust. When clients begin the estate planning process, an initial decision to be made is whether to center the plan around one or the other, according to The Northside Sun’s article “Do You Have a Will or a Trust? Why?” 

According to the article, the AARP indicates that most people prefer to use a Living Trust.

One of the many differences between a Will and a Living Trust is that a Will operates only after your death. It is simply a set of instructions on who is to receive your assets after you have passed on, and has no legal effect until that time comes. That means if you become mentally or physically incapacitated during your lifetime and are unable to manage your own finances or property, a Will does not help you. That is why a Power of Attorney is so important, because it appoints an agent to stand in your shoes for property and financial matters if you cannot handle things yourself. Unfortunately, if a Power of Attorney is too old, financial institutions may refuse to honor it. In the absence of a recognized Power of Attorney, the family may need to apply to the court for a conservatorship, which can be costly, embarrassing (because it is public), and burdensome.

By contrast, a Living Trust takes effect as soon as it is created and funded. That means, if incapacity strikes, the successor Trustee named in the Trust document is able to immediately handle and manage the Trust property on your behalf and without the resistance from financial institutions that often accompanies the use of a Power of Attorney. That is why our successor Trustees ought to be people that we “Trust,” because they have the power to act as an owner does, but for the benefit of the Trust’s beneficiaries.

Another important difference between a Will and Living Trust is that a Will must go through a court proceeding known as probate before assets can be transferred to others following a death. That is because the Will does not change how you own your property, it just states who is to get it after you are gone. The process of probate can take years and may cost roughly 5% of the value of the assets transferred.  A Living Trust, on the other hand, functions without the need for probate court involvement (both in cases of incapacity and at death) because property is actually transferred to the Trust during your lifetime. Since a Trust doesn’t die, court involvement is avoided after a death occurs, and the Trust assets are privately transferred to the next level of beneficiaries following a death, at relatively little expense. 

A final significant difference between a Will and a Living Trust is that Wills are public documents. When property transfers through a Will via the probate court process, all details are archived in a court record that is accessible to the public at large. In this day and age, the prospect of our property and who is to receive it becoming publicly accessible information ought to be very concerning. Unscrupulous people can use that information to prey on beneficiaries receiving property in any number of ways. 

Unlike a Will, a Living Trust is a private document. It does not become part of a court record after a person dies, and the property owned by the Trust is not information that is accessible to the public. The identity of the beneficiaries of the Trust also remains private and out of the public eye.

Speak with an experienced estate planning attorney to learn how you can use Trusts as part of your estate plan. Trusts don’t have to be complicated to serve your needs. They actually simplify your affairs in a number of ways.

Reference: The Northside Sun (August 14, 2019) “Do You Have a Will or a Trust? Why?”

Continue Reading
Where Should I Keep My Will and Trust?
These are your documents, and you should have them where YOU feel comfortable and where you feel your Executor and/or successor Trustee will be able to find them when needed.

Where Should I Keep My Will and Trust?

Clients often ask where they should keep their Will and Trust. Although some people ask their attorney to hold the original documents of their estate plan, Forbes’ recent article, “Keeping Your Estate Planning Documents Safe,” explains that, because of the expense of storage and the move to paperless offices, many estate planning attorneys are now having their clients hold the original documents. I believe that is the right answer. I’ve seen well established law firms with secure vaults bumble with the retrieval of original documents. Even recently, I had to push a firm who insisted they no longer had an original Will. They did in fact have it (and ultimately found it), but it wasn’t filed where they thought it was.

If you are wondering where to keep your Will and Trust, here are some options to consider (and some to avoid):

Caution with safe deposit boxes. I would generally avoid placing the original documents in a safe deposit box, because the authority to get into the box is inside the box! If you pass away or are incapacitated it will require a court order or at least a key and an on point reference to the probate code to obtain access to the box (in California for instance, Probate Code Section 331 allows a person with a key to gain access to the box for the purposes of retrieving original Will and Trust documents). Point being, expect your Executor or Trustee to encounter resistance, and be prepared for that if a safe deposit box is where you feel you should keep your Will and Trust.

You don’t need to get too creative. These are your documents, and you should have them where YOU feel comfortable and where you feel your Executor and/or successor Trustee will be able to find them when needed. If your originals get lost or destroyed, get with your estate planning attorney to sign new original documents ASAP.  And follow the next pieces of advice..

Have copies. Get a set of hard copies in another location that is easily accessible. You can now use the safe deposit box to hold a set of copies of your documents, if you’d like. Your attorney should also have a set of copies.

E-records. Your estate planning attorney should have an electronic copy of your estate plan and should be willing to send you an electronic version of the documents to keep with your e-records, if you ask for it.

Fireproof safe. A fireproof safe is a great place to keep these important documents. Give a key or combination to your Executor or be sure they know where to find it.

If the original documents somehow vanish after a death, your family may still be able to use a set of copies, particularly for Trust documents. For Wills, California law presumes that a Will was destroyed with the intent to revoke it if the original cannot be located, although you may petition the probate court to prove the terms of the lost or destroyed will.  If that fails, the laws of intestate succession will apply.

Remember that creating your Will and Trust isn’t a “one and done” task. You should review your estate planning documents every few years to make certain the people you’ve named in them are still alive and your intentions haven’t changed. In addition, review where you should keep your Will and Trust based on the conditions in existence at the time, and ensure that those who will ultimately need those documents will know where to look.

Reference: Forbes (August 16, 2019) “Keeping Your Estate Planning Documents Safe”

Continue Reading
What to Look for When Comparing Assisted Living Centers
Be sure to tour at least three or four facilities with the person who will be moving into assisted living, if possible, and if not, with people who know the person. Trust your instincts.

What to Look for When Comparing Assisted Living Centers

Whether you are evaluating assisted living centers for yourself or your loved one, it can help to know what questions to ask. After you look at the websites and visit several facilities, the details can get overwhelming. If you prepare a checklist, you can organize your thoughts and have more confidence in your decision.

The issues you need to address will depend on the needs of the person who will receive the services at the facility.

To get you started, here are some suggestions of what to look for when comparing assisted living centers.

  1. The floorplan options of the apartments. Some people will be happier in a smaller space, like a studio apartment, that requires little upkeep. Another person might want a big kitchen because he loves to cook, or an extra bedroom for friends and relatives to come to visit. Make sure that the floorplan you select has enough space for the furniture, clothes and other items your loved one wants to have on hand. Think about hobbies, socializing and other activities and be sure there will be adequate space for these things.
  2. The costs. You should receive a written statement of how much each type of apartment costs per month, as well as exactly what services the facility includes in that price. Get details about the cost of included meals, housekeeping services, electricity and other utilities, cable television, internet, phone and activity fees. You should also get a list of everything the facility does not provide for the base price, and the additional costs of those items and services. You need to know the expense of the different levels of care available, if the resident’s needs change.
  3. Medical issues. Find out if the facility has other residents with similar medical needs. Ask about the medical services and treatment the facility provides, and the hours of availability. Some facilities only offer certain medical services during the week, and not during evenings or weekends. Ask whether the staff administers medications and if there is a nurse onsite 24/7.
  4. Get information about the staff-to-resident ratio, and exactly what that means. Including the people who mow the grass or do other non-patient care duties is a way some facilities inflate their staff to resident ratios. Ask about the experience, training and credentials of the people who provide the hands-on resident care.
  5. Common areas. Go look at the facility and explore the common areas. Some facilities only have one big room as the common area. The residents take all their meals in that room, engage in activities there and spend time watching television or socializing with other residents. Find out whether there are attractive and comfortable outdoor spaces. You should also see if there are smaller rooms available to the residents to visit with guests or have some quiet time by themselves. The resident should have more options than only his room and a crowded multi-purpose dining room.

Be sure to tour at least three or four facilities with the person who will be moving into assisted living, if possible, and if not, with people who know the person. Trust your instincts and first impressions of the centers. Talk with people who live at the facilities and find out what they like and do not like about the places. Finally, find out about the policy for return of the deposit, in the event that your loved one moves in and does not mesh well with the facility, or is unhappy.

If mental function is in check, it’s wise to update or create new estate planning documents and review beneficiary designations, etc, at this time as well, or at least shortly thereafter, to be sure that things are still set up effectively.

References:

A Place for Mom. “Assisted Living Residence Checklist.” (accessed August 7, 2019) https://www.aplaceformom.com/planning-and-advice/articles/assisted-living-resident-checklist

Continue Reading
What is Community Property in California?
Community property includes earnings during the marriage and all property bought with those earnings. It begins at the marriage and ends upon separation.

What is Community Property in California?

Marital property in community property states is owned by both spouses equally, according to nj.com’s recent article, “Does this house really become community property after marriage?”

Let’s imagine you own a home before your second marriage and created a will leaving the condo to a child. However, you sold the home and purchased another house in your name using funds from the sale and your own funds.

Does your new spouse own half the house, even though it’s in your name because it’s a “community property” state?

Marital property includes earnings, all property bought with those earnings, along with any debts accrued during the marriage. Community property begins at the marriage and ends when the couple physically separates with the intention of not being married. Thus, any earnings or debts originating after this would be separate property. Any assets acquired prior to the marriage are considered separate property and are owned only by that original owner.

However, a spouse is permitted to transfer the title of any of their separate property to the other spouse as a gift. He or she can also make it community property, by making a spouse an account holder of a bank account. This is called “comingling.” Spouses can also comingle their separate property by adding funds from before the marriage to the community property funds, or vice versa.

However, a spouse can’t transfer, alter, or eliminate any whole piece of community property, without the other spouse’s permission. They can only manage their own half. The whole property includes the other spouse’s one-half interest. In other words, that spouse can’t be alienated from the one-half that belongs to him or her. A spouse, however, can direct that your child receives her half at death; however, unless assets are held as “community property with right of survivorship.”

If a couple holds title as community property with right of survivorship, when one spouse dies, the property will automatically belong to the surviving spouse 100% with no probate court proceedings. However, a probate will likely be required upon the surviving spouse’s death, which can involve significant cost when real estate is part of the probate estate. That is why a living trust is often recommended as part of the estate plan, so that probate is avoided.

Work with an experienced estate planning attorney who can examine the specifics of your circumstances and determine the best tools to accomplish your goals.

Reference: nj.com (August 5, 2019) “Does this house really become community property after marriage?”

Continue Reading
Advanced Estate Planning with Lifetime Gifts
There are advanced estate planning strategies that involve making lifetime gifts either to an irrevocable trust, family business entity, or even through an intra family loan.

Advanced Estate Planning with Lifetime Gifts

There are a number of estate planning strategies that can help preserve your assets, promote the transfer of wealth, and lessen the tax burden on you and your estate. Forbes’s article entitled “5 Lifetime Gift Strategies For You And Your Family To Consider” that discusses five frequently-used lifetime gifting strategies to consider as part of your estate plan if you have significant wealth to transfer to future generations.

These are advanced estate planning strategies that involve making lifetime gifts either to an irrevocable trust, family business entity, or even by making an intra-family loan.

A grantor retained annuity trust (GRAT) is an irrevocable trust strategy that can be a good choice if you want to transfer hard-to-value assets and if you are unlikely to pass away in the very short run. A GRAT lets you transfer assets to a trust and retain the right to receive a fixed annuity payment for a term of years, at the end of which the remaining trust assets are distributed to your beneficiaries without any more gift or estate taxes. What’s neat is, the income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. But here is the kicker.. if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination. GRATs must have a minimum term of two years.

A defective grantor trust strategy can let you transfer appreciated assets to your trust without recognizing a capital gain on the sale. Here, the grantor transfers property to a trust in exchange for a promissory note that carries a market rate of interest and a balloon payment at the end of the note’s term. If the growth of the trust assets exceed the interest rate on the note, the excess is passed on to the beneficiaries free of any gift tax. Unlike the GRAT, regardless of when a person dies, the trust assets are not part of the grantor’s estate; however, if the note has an outstanding balance, that balance is included as a part of the estate.

Family limited liability entities are complex estate planning strategies that can provide many benefits to high net worth families with personal, business and investment assets. They’re flexible, so it makes them particularly attractive, because their governing documents can be changed as family dynamics and family business structures evolve. These entities are frequently used to help families consolidate investments, share income with family members in lower tax brackets, shield assets from lawsuits and create a long-term estate plan. Speak with an estate planning attorney to see if this strategy makes sense for your situation.

A lifetime credit shelter trust can be a wise estate planning vehicle if you want to leverage the increased lifetime gift-tax exemption amount but want to retain some indirect access to those assets via your spouse. With this trust, the grantor makes a gift to the trust for the benefit of his or her spouse and other family members. Because of the spouse’s rights to the assets in the trust as a beneficiary, the grantor also maintains his or her access indirectly. You can allocate your lifetime exemption while the gifted assets, including any appreciation, stay outside your estate for estate tax purposes. You and your spouse can create lifetime credit shelter trusts, but they can’t be identical.

Another strategy is making an intra-family loan. The tax code lets you make loans to family members at lower rates than commercial lenders, without the loan being considered a gift. You can help your family members financially without incurring more gift tax. The IRS requires that a bona fide creditor relationship with a minimum interest rate be created. This can be a good way to transfer wealth, if the borrowed assets are invested and earn a stronger rate of return than the interest rate on the loan. The interest must also be paid within the family.

Speak with an estate planning attorney with experience with lifetime gifting strategies and entity planning if you want to explore the above strategies for your situation.

Reference: Forbes (August 5, 2019) “5 Lifetime Gift Strategies For You And Your Family To Consider”

Continue Reading
What is Portability in Estate Planning?
When one spouse dies, it is generally recommended that the surviving spouse file a Federal Estate Tax return for reasons of portability.

What is Portability in Estate Planning?

Let’s address the elephant in the room: the word “estate” in planning doesn’t have anything to do with the size of your home. It simply refers to a person’s assets: their home, bank accounts, a second home, investment accounts, cars, anything you’ve got.

The federal estate tax, says The Times Herald in the article “Federal estate tax and portability considerations,” impacts very few people today, as a person would have to have assets that total more than $11.4 million (or $22.8 for a couple) before they have to worry about the federal estate tax.

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 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. Or, the surviving spouse may 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, which should be done with the help of an estate planning attorney to be sure any tax issues are dealt with properly. In addition, when one spouse has passed, it is time for the surviving spouse to review their estate plan to make any necessary changes.

Reference: The Times Herald (July 7, 2019) “Federal estate tax and portability considerations”

Continue Reading