Regardless of the overall value of your assets, you should plan now to maximize the amount that you can leave to your family and loved ones and to reduce government taxes. This is especially true for wealthier individuals who may be subject to the federal estate tax. Consulting with an experienced estate planning attorney now can save government taxes.
The federal estate tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. There is also a federal gift tax, which is a tax when you gift property or sell property for no value or less than full value, in return above the annual gift tax exclusion, which in 2023 is $17,000 for each individual and $34,000 for a married couple.
However, there is a federal estate and gift tax exemption which permits individuals to gift assets during their lifetime and at death under a certain amount without paying estate or gift tax. In 2023, the federal estate tax exemption is $12,920,000 for each person and for a married couple it is $25,840,000. This means that any estate valued at less than that amount is not subject to the federal estate and gift tax. For estates with a value in excess of $12,920,000, however, the federal estate and gift taxes apply, and the tax rates range anywhere from 18% to 40% of the value of the estate in excess of the exemption.
This may seem like a large exemption. However, on January 1, 2026, this exemption is set to expire, or “sunset,” unless Congress acts before then. If it expires, then the exemption reverts back to the amount in place in 2017, which was $5.6 million for individuals and $11.8 million for married couples.
Married couples should consider taking advantage of the ability to utilize the unused portion of a deceased spouse’s exemption to take full advantage of the married couple’s exemption. This is referred to “portability”. Portability provides that any of the federal estate and gift tax exemption that is unused at a person’s death can be transferred to the decedent’s surviving spouse for the ultimate use by that spouse’s estate. Therefore, the surviving spouse’s estate would be able to utilize the full value of the federal estate tax exemption.
In order to make a portability election, the deceased spouse’s estate must file a federal estate tax return (Form 706) and make a portability election. Such federal estate tax return must be timely filed to effectively make the portability election.
Portability is an effective estate planning to reduce taxes. If Congress does not act to extend the exemption, it will be lowered effective January 1, 2026. However, if utilized now, the amount of the federal estate tax exemption transferred from the deceased spouse’s estate to the surviving spouse will stay the same, regardless of changes to the exemption amount in subsequent years.
Schedule a consultation now with the experienced estate planning attorneys at Supinka & Supinka, PC to create an effective estate plan.
Supinka & Supinka PC 724- 349-6768.
