Portability can preserve a deceased spouse's unused federal estate tax exemption when families follow IRS filing rules.
"THE LEGAL CORNER"
By Sam A. Moak
What is Portability?
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
In Texas, understanding portability and estate tax is not just advisable; it's essential for anyone involved in estate planning with estates that exceed $30,000,000.00. Estates valued below $30,000,000.00 are exempt from estate taxes, but may need to consider portability. While most estates fall below $30,000,000 and that number seems like a high ceiling, with the crazy prices in real estate today, that ceiling isn't as high as you might think. A clear understanding becomes pivotal for navigating through the intricacies of wealth transfer after death. Despite Texas not imposing its own estate tax, the federal implications are large for residents and making informed decisions as you navigate through these legal waters crucial. So, in this week's column, I wish to introduce to you the topic of portability so that you can discuss it with your legal and tax professionals. Think of portability as your map to minimizing estate taxes, ensuring that more of your hard-earned money stays in the family.
Whether you're sitting on a chest of gold or planning to amass one, knowing how to navigate the estate tax landscape is crucial. You will need a CPA that can provide the basic understanding of portability for your benefit.
Estate tax, the levy on the transfer of the deceased's estate, stands as a pivotal consideration in estate planning. This tax, while federal, affects Texans in profound ways, influencing decisions on estate distribution and planning strategies. Its purpose, to tax wealth transfers, impacts estate sizes variably, with specific exemptions providing some relief.
The concept of portability within estate tax legislation marks a significant shift in how spouses can manage their combined estate's tax burden. By allowing the surviving spouse to inherit any unused federal estate tax exemption from their deceased partner, portability offers a pathway to substantial tax savings. This mechanism, pertinent under federal law, requires strategic application to maximize its benefits within Texas.
Portability's benefits, while significant, come with strict eligibility criteria. The Internal Revenue Service (IRS) delineates these, emphasizing the necessity of a timely and accurate estate tax return filing. For Texans, understanding these criteria is fundamental to leveraging portability effectively, ensuring that no potential tax advantage goes unutilized. The deadline for filing is 9 months after the date of death. This deadline can be extended, but again a proper filing must be made by your CPA or tax professional.
The election process for portability involves procedural diligence. Filing IRS Form 706, a step necessary even when no estate tax is due, embodies this process's core. For Texans, adhering to the IRS's filing deadlines is critical, as any oversight here can negate the opportunity for tax savings.
Married couples in Texas stand to gain a significant benefit from portability. This provision can mitigate estate taxes dramatically, ensuring a larger portion of the estate benefits the heirs. Through strategic use of portability, countless Texan families have navigated the estate tax landscape more favorably, securing financial legacies.
If you have recently lost a loved one, you should seek the assistance of an estate attorney with experience in handling estates AND a tax professional. These two professionals should be able to walk you through the process of transferring assets (probate) and protect any tax protections that you are available.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com (c)