When you hear about the federal estate tax, you may assume that every estate is exposed. Fortunately, this is not the case. First of all, you should understand the fact that there is an unlimited marital estate tax deduction. You can leave unlimited assets to your spouse without incurring any estate tax liability, assuming your spouse is an American citizen.
This citizenship requirement underscores the reason why you still need an estate plan that provides estate tax efficiency, even if you are leaving your estate to your spouse.
The powers that be do not extend the unlimited marital deduction to citizens of other countries to prevent a surviving spouse from returning to his or her country of citizenship with a tax-free inheritance.
A transfer to a citizen spouse is not a source of concern for the tax man, because the estate tax would still be looming after the death of the first spouse.
Federal Gift Tax
You should also be aware of the existence of the federal gift tax. This tax is in place to stop people from giving gifts in an effort to avoid the estate tax.
The unlimited marital deduction extends to the gift tax. You can transfer unlimited assets to a citizen spouse free of asset transfer taxes, regardless of when the transfers take place.
Unified Lifetime Gift and Estate Tax Exclusion
We have established the fact that you can transfer unlimited assets to your spouse without incurring any transfer tax liability. However, transfers to other heirs are subject to the estate tax. That’s the bad news. The good news is that there is a unified lifetime credit or exclusion, and it is relatively high.
This exclusion stands at $5.43 million during 2015. Up to $5.43 million could be transferred to people other than your spouse before the transfer taxes would be applied.
The estate tax credit is portable. This means that your surviving spouse could use your exclusion along with his or her own exclusion after your passing.
This would provide a total of $10.86 million using the figures that are in place for the current calendar year.
Free Estate Tax Report
You should have a thorough understanding of the federal transfer taxes if you are planning your estate as a high net worth individual. If you would like to learn more, we have a valuable resource that you can access through this website.
Our firm has prepared a special report on the estate tax, and it is free to our readers. To access your copy of the report, visit this page and follow the simple instructions: Free Report on Federal Estate Tax.
To Schedule a Consultation
If you are interested in the possibility of working with our firm after learning these facts, please select our “Workshops” tab to RSVP for a free estate planning workshop. At that workshop you will be offered a free one-hour consultation with an attorney. www.collinslawgroup.com/seminars/
To learn more, please download our free California estate tax report here.
Attorney Caprice L. Collins is a top rated Harvard Law School graduate. She has 34 years of legal experience with a successful law practice devoted exclusively to Estate/Business Planning and Trust Administration. Attorney Collins is a well-respected keynote speaker on Wills, Living Trusts, Estate Planning, Business Planning and Trust Administration. She has appeared on California’s Real Estate Radio Station KTLK AM 1150 as a legal expert on Estate Planning and Living Trusts among many other notable media appearances.