The “Write” Plan

The Tax Cuts and Jobs Act was signed into law on December 22, 2017, doubling the amount a taxpayer may leave to his or her beneficiaries without paying the federal estate tax. However, this is one of the individual tax changes in the new law which “sunset” on December 31, 2025.

An individual who passes away in 2018 is permitted to pass $11.18 million to non-spousal beneficiaries before paying the 40% federal estate tax, as long as he or she hasn’t previously used a portion of that exemption amount for lifetime gifts. With exemptions this high, the vast majority of the U.S. population will not pay the federal estate tax.

However, even with the high exemption amounts, it is important to consider the use of the “portability election.” This election refers to the right of a surviving spouse to claim the unused portion of the federal estate tax exemption of their deceased spouse and add it to the balance of their own exemption, allowing the surviving spouse to shield more assets from the estate tax. While you might think this could never be a benefit to you or your family because of the high exemption amounts, you should consider the potential asset growth that could occur during the surviving spouse’s lifetime, as well as the fact that the exemption amount will be cut in half in 2026. At a 40% tax rate, the decision not to protect those extra dollars from the estate tax could be very costly. It is worth talking to an attorney to understand how this could impact your family, especially because portability is not automatic and there are time limits for making the election with the IRS.

To make the portability election, the surviving spouse must file a federal estate tax return, even if no estate tax is payable. The estate tax return is due within nine months of death, although in certain cases, addition time may be permitted. Surviving spouses of decedents who died within the past eight months should immediately consult with an estate planning attorney to determine if the portability election should be made with regard to their deceased spouse’s estate. Failure to timely make the election or seek an extension may end up shortchanging heirs and putting the estate administrator at risk for future legal claims.

ABOUT THE
AUTHOR

I am a shareholder of Koley Jessen P.C., L.L.O., located in One Pacific Place. My practice is focused on estate and tax planning. Outside of the office, I enjoy spending time with my husband and our three children. For help with your family’s estate planning needs, please contact me directly at lisa.lehan@koleyjessen.com  or 402.343.3881.

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