Estate Planning for Married Couples

The new tax law passed last December created some interesting planning opportunities for married couples. A surviving spouse can add the deceased spouse’s $5 million exemption to his or her own exemption, allowing married couples to transfer up to $10 million tax-free. Married couples need to understand the following about the new tax law:

• If Congress fails to act before 2013, this “portability” between spouses will expire. Thus, bypass trusts may still be a good idea. Bypass trusts can also provide asset protection, a shelter for appreciation, and estate tax exemption preservation for state estate taxes.
• This $10 million exemption per couple also applies to lifetime gifts. However, whatever is used during life will reduce the exemption available upon death.
• Portability is not automatic; the executor of the estate must file an estate tax return to preserve the exemption, even if no tax is due.
• If a widow or widower remarries, he or she only gets the unused exemption of the spouse that died most recently.

See Deborah L. Jacobs, Estate Planning for Two, Forbes, Apr. 1, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.