A recent article in The Woodlands Villager pointed out the importance of updating your wills if you are married. Estate tax changes in the last several years have changed the landscape and type of planning necessary for many couples. Here are a few of the changes:
Estate tax exemption amount. Over the last ten years or so, the estate tax exemption amount (the amount you can leave to your heirs or other beneficiaries without paying estate tax) has increased from $600,000 to $5,340,000 (and will increase to $5,430,000 in 2015). For a married couple the amount would be twice that of an individual (i.e., $10,680,000 for 2014). This amount is scheduled to increase each year. This means that even if you had a taxable estate ten years ago, there is a much smaller chance that you will have a taxable estate when you die. So, while many married couples had tax planning that contained a traditional tax-planned will with bypass and marital trusts, this may no longer be the best option for you given the new higher exemption amount. Your estate planning attorney can help you decide what type of planning will best fit your needs.
Spousal portability. Another big change to the tax laws involved what is called “portability”. Originally a temporary change to the tax code, portability was made permanent in 2012, and it allows a surviving spouse to utilize the unused portion of a deceased spouse’s exemption amount. For example, if a husband dies in 2014 with an estate worth $3,000,000, then his wife will be allowed to use the remaining $2,340,000 of husband’s exemption amount. Thus, if wife were to die at a time when the estate tax exemption amount is, for example, $6,000,000, then her estate would only be taxable to the extent that it exceeded $8,340,000 (her $6,000,000 exemption plus her deceased husband’s remaining exemption of $2,340,000).
The changes in estate tax law coupled with changes in income tax rates, namely, the 3.8% Medicare investment surtax, may mean that the traditional bypass trust planning is no longer the best option for many married couples. To determine the best type of planning for your situation, you should speak to a qualified estate planning attorney.
Reference: The Woodlands Villager (November 14, 2014), Estate tax provisions for married couples in recent wills, trusts, may be obsolete – Part I