Estate tax law is marking a centennial this year. As you might expect, the rules have changed a bit over the past century. Here's an overview of current provisions.
- Exemption amount. The estate tax exemption is the amount of assets you can transfer, estate tax-free, to your heirs via your estate plan or through gifts during your lifetime. The basic federal estate tax exemption is $5 million, and is adjusted annually for inflation. For 2016, the exemption is $5,450,000.
- Portability. Portability is an election you make as an executor to apply the unused portion of one spouse's basic exemption to the second spouse's estate. As a permanent part of estate tax rules, portability makes it possible to transfer all or part of an unused exclusion between spouses. You do that on Form 706, the federal estate tax return. The catch: Normally, you have to file the return and the election by the nine-months-after-death due date, even if the total value of the estate is less than the exclusion.
- Basis reporting. Estate tax rules require consistent reporting of property values between an estate and the beneficiaries. As an executor, you'll have to file a statement with the beneficiaries and the IRS notifying both of the value of the property as reported on the estate return. Unless an exception applies, the beneficiaries, in turn, can claim no more than that value when the property is later sold or disposed of. The statement is due within 30 days after the estate return is filed or 30 days after the due date of the estate return, whichever is earlier. Penalties apply for failure to file the statement and for inconsistent reporting of the values.
Contact us to schedule an appointment to update your estate plan. We can help you understand planning documents, such as wills, trusts, and beneficiary designations, as well as your exposure to federal and state taxes.
