Estate Tax Relief for Surviving Spouses

Marriage is a sacred bond. You have made vows to your spouse, who is your partner in life and is your most important relationship. You have worked hard together, raised children together, and planned your lives together. That is why when people plan their estates, the first priority is often to make sure that their surviving spouse is put in a position to succeed. That is important to understand the marital deduction and its implication for surviving spouses.

Marital Deduction

Estate taxes are taxes owed to the IRS when a person dies and their property passes on. In order to trigger this tax, an estate must be valued at more than the $5.49 million exemption for an individual or $10.98 million for a married couple. Because the estate tax can be a massive 40% tax on qualifying estates, estate planning often involves taking steps to legally distribute property in a manner that minimizes the amount of taxes that must be paid.

Fortunately for spouses, tax law allows a marital deduction to allow one spouse to make unlimited property transfers to the other spouse before or after their death. These transfers are not subject to immediate taxation. Note that I said “immediate” taxation. Essentially, the marital deduction is a way for a couples’ estate to defer paying estate taxes. This is because once the surviving spouse gifts the property to others, or passes away, the property becomes subject to taxation.

Portability Election

As previously mentioned, there is a $5.49 million estate tax exemption for individuals and $10.98 million for couples. Traditionally, in order for a surviving spouse to take advantage of the full $10.98 million exemption, they would have to file an estate tax return to make this “portability” election. In other words, it was not automatic, and if a spouse failed to claim their deceased spouse’s estate tax exemption, they would lose it.

Recent changes to IRS procedure have provided some relief to surviving spouses who were unaware or mistakenly failed to claim their spouse’s exemption. First, the IRS has extended the deadline to file an estate tax return for the deceased spouse from nine months to two years to allow the surviving spouse more time to claim the election. In addition, for surviving spouses who have already missed this deadline, there is a grace period (until January 1, 2018) to elect for the exemption.

Contact a Tax Attorney to Plan Your Estate

If you and your spouse have a large estate, it is critical that you seek the advice of an experienced attorney to plan your future. Probate law and estate taxes are incredibly complex and ever-evolving bodies of law. Contact the Law Offices of Robert S. Thomas today. I have practiced for more than twenty years in the areas of estate planning, probate law, and tax law and want to help you achieve your goals. Contact our office today at 847-392-5893 to schedule an appointment or visit our website today.

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