What is Estate Tax Portability, and How Can It Help Me?
Federal estate taxes only apply to wealthier individuals, and portability is a way to reduce the burden on a married couple. This practice allows an unused tax exemption to be used by the surviving spouse as long as the right IRS form is used. It’s a small price to pay if it helps your beneficiaries.
If estate taxes may be in your future, LKP’s estate planning may allow you to avoid or lessen its impact on your estate. This will enable you to provide more assets to the people and causes you care about. Our team of highly experienced Las Vegas estate planning attorneys understands how to effectively and legally reduce your estate’s tax bill. They can create a plan that will work for you and your family.
What is an Estate Tax?
The federal estate tax is on your right to transfer property when you die, according to the Internal Revenue Service (IRS). It accounts for everything you own or have interests in at your death. It uses the assets’ fair market value, not what you paid to buy them or their value when you acquired them. Your estate’s personal representative would add the total for all these items to get your “gross estate.” This could include:
- Cash
- Securities
- Real estate
- Insurance
- Trusts
- Annuities
- Business interests
- Other assets
After determining your gross estate, there may be deductions and reductions in value to calculate your “taxable estate.” They can include:
- Estate administration expenses
- Mortgages and other debts
- Value reductions for farms and some operating business interests for estates that qualify
- Property passing to surviving spouses and qualified charities
The value of lifetime taxable gifts is added, and the tax is computed, which is reduced by the available unified credit.
Most estates don’t require an estate tax return filing. The federal estate tax applies when the decedent’s gross estate, plus the adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year the decedent dies. For 2024, the amount for an individual is $13.61 million. The federal estate tax rate ranges from 18% to 40%, depending on the estate’s size. There’s no Nevada estate tax.
What is Estate Tax Portability?
Estates of decedents survived by a spouse can choose to pass any part of an unused exemption to that spouse. That choice is made on an estate tax return form.
This is how it can play out:
- A husband dies in 2024, and his estate doesn’t use his full filing threshold/exemption. It uses $8.61 million instead
- The surviving wife passes away later that year. Her estate can claim that unused exemption ($5 million) plus her $13.61 million exemption
- The first $18.61 million of the wife’s estate would be exempt from federal estate taxes
For the sake of argument, if the surviving spouse’s taxable estate was $18.61 million, that extra $5 million saved her estate about $1.8 million in federal estate taxes it need not pay.
Through Estate Planning, Your Taxable Estate Could Be Less Than the Exemption, Portable or Not
Estate planning’s primary goal is for your assets to be managed and distributed during your life and after your death based on your wishes. Relatively few of us will have an estate worth anything close to $13.61 million this year.
If you would and want to prevent federal estate taxes from being an issue, your property and assets can be structured so they fall outside of what the IRS considers your taxable estate. If enough assets are handled this way, the threshold filing amount becomes less of an issue.
This goes beyond the standard approaches of wills, trusts, and powers of attorney. To make this work, you’ll need the help of attorneys who specialize in this area of law. Given how much money is at stake, you don’t want to use a law firm that only dabbles in estate planning by cranking out fill-in-the-blank forms.
Contact a Las Vegas Estate Planning Lawyer to Prevent Federal Estate Taxes
There are many ways to reduce your taxable estate. LKP estate planning attorneys can discuss them with you, which ones are most appropriate for you and your family, and how to accomplish this.
We are highly experienced estate planning lawyers in Las Vegas helping clients throughout Nevada. If you’re considering estate planning for you and your family, call us for a free consultation.
We will discuss available options, and you can decide which are best for you. Call us at 702-333-1711 or use our online contact form today to speak to an estate planning attorney in Las Vegas, Nevada.
Attorney Kennedy Lee practices in all aspects of trust and estate law. He views all legal issues from multiple angles (e.g. from litigation to administration point of view) to provide a higher quality of service to our client.