Sometimes it really does make “cents” to file IRS form 706! In 2010 the rules governing federal estate taxes were changed to introduce the concept of “portability” of the federal estate tax exemption between married couples. Our clients may benefit by leveraging this tool and can do so retroactively. As a personal property appraiser, I would advise that any clients making this filing also include a valuation of all personal property assets to be able to include the total assets in the calculation and maximize the value of exemption transferred.
So what does "portability" of the estate tax exemption mean to our clients?
Portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use all of the deceased spouse's federal exemption from estate taxes ($5,600,000 for 2018), then the amount of the exemption that was not used for the deceased spouse's estate may be transferred to the surviving spouse's exemption so that he or she can use the deceased spouse's unused exemption plus his or her own exemption when the surviving spouse later dies.
Financial Benefit of Portability: An Example
John and Ann are married and have all of their assets jointly titled and their net worth is $9,000,000. John dies first and the federal estate tax exemption is $5,600,000 on the date of his death.
Since all of the assets are held jointly, John’s estate will not need to use any of his $5,600,000 estate tax exemption because the unlimited marital deduction allows for the automatic transfer of John’s share of the joint assets to Ann by right of survivorship and without incurring any federal estate taxes.
The big catch is that Ann will not automatically inherit John’s unused exemption. Instead she must file IRS Form 706 in order to make an affirmative election to add John’s unused exemption to her exemption.
If the IRS Form 706 is filed to claim portability, when Ann later dies, John’s exemption of $5,600,000 is added to Ann’s $5,600,000 giving Ann’s estate a total$11,200,000 exemption. Based upon their net worth of $9,000,000, Ann can pass on this value free from federal estate taxes at the time of her death.
$9,000,000 estate - $11,200,000 exemption = $0 taxable estate
If Ann does not claim John’s exemption however, the estate will have to pay taxes.
$9,000,000 estate - $5,600,000 exemption = $3,400,000 taxable estate
Good news for executors who were not aware of the exemption portability at the time of death of the first spouse; the IRS Revenue Procedure 2017-34 grants executors the opportunity to retroactively elect portability of the deceased spousal unused exclusion (DSUE) amount.
To recap, filing an IRS Form 706 can save an estate quite a bit of money in taxes. The IRS has simplified the procedure for claiming portability and the executor can file retroactively to take advantage of the deceased spouse unused exclusion (DSUE). Including a valuation of the personal property can help executor’s take full advantage of the portability rule and maximize the value of the estate passed on to heirs. Sometimes it really does make “cents” to file the IRS form 706.
Auction News
When is Play-Doh more than just child’s play?
Jeff Koons (American 1955)
Play-Doh
Aluminum (polychromed) sculpture
$20,000,000 hammer price May 17, 2018 Christie’s, New York
Post-War and Contemporary Art Evening Sale
Source: artprice
So what does "portability" of the estate tax exemption mean to our clients?
Portability of the federal estate tax exemption between married couples means that if the first spouse dies and the value of the estate does not require the use all of the deceased spouse's federal exemption from estate taxes ($5,600,000 for 2018), then the amount of the exemption that was not used for the deceased spouse's estate may be transferred to the surviving spouse's exemption so that he or she can use the deceased spouse's unused exemption plus his or her own exemption when the surviving spouse later dies.
Financial Benefit of Portability: An Example
John and Ann are married and have all of their assets jointly titled and their net worth is $9,000,000. John dies first and the federal estate tax exemption is $5,600,000 on the date of his death.
Since all of the assets are held jointly, John’s estate will not need to use any of his $5,600,000 estate tax exemption because the unlimited marital deduction allows for the automatic transfer of John’s share of the joint assets to Ann by right of survivorship and without incurring any federal estate taxes.
The big catch is that Ann will not automatically inherit John’s unused exemption. Instead she must file IRS Form 706 in order to make an affirmative election to add John’s unused exemption to her exemption.
If the IRS Form 706 is filed to claim portability, when Ann later dies, John’s exemption of $5,600,000 is added to Ann’s $5,600,000 giving Ann’s estate a total$11,200,000 exemption. Based upon their net worth of $9,000,000, Ann can pass on this value free from federal estate taxes at the time of her death.
$9,000,000 estate - $11,200,000 exemption = $0 taxable estate
If Ann does not claim John’s exemption however, the estate will have to pay taxes.
$9,000,000 estate - $5,600,000 exemption = $3,400,000 taxable estate
Good news for executors who were not aware of the exemption portability at the time of death of the first spouse; the IRS Revenue Procedure 2017-34 grants executors the opportunity to retroactively elect portability of the deceased spousal unused exclusion (DSUE) amount.
To recap, filing an IRS Form 706 can save an estate quite a bit of money in taxes. The IRS has simplified the procedure for claiming portability and the executor can file retroactively to take advantage of the deceased spouse unused exclusion (DSUE). Including a valuation of the personal property can help executor’s take full advantage of the portability rule and maximize the value of the estate passed on to heirs. Sometimes it really does make “cents” to file the IRS form 706.
Auction News
When is Play-Doh more than just child’s play?
Jeff Koons (American 1955)
Play-Doh
Aluminum (polychromed) sculpture
$20,000,000 hammer price May 17, 2018 Christie’s, New York
Post-War and Contemporary Art Evening Sale
Source: artprice
