Q&A with Stacey D. Spivey
When estate planning, spouses face a variety of options
Q: Under current federal law, what amount of money can pass free of federal estate or gift taxes?
A: As a result of fairly recent federal law changes, the combined estate and gift tax exemption is $5 million per person with indexing for inflation on an annual basis. This results in a federal exemption of $5.25 million in 2013 for lifetime transfers by gifts or transfers at death. This means a married couple may shelter $10.5 million from gift tax or estate tax this year with proper planning. The federal estate and gift tax rate is now 40 percent of the excess over the federal estate and gift tax exemption amount. Transfers from one spouse to the other spouse and transfers to qualified charities are generally free from federal estate or gift tax. For deaths in 2010 and thereafter, there is no separate Oklahoma estate tax. Also, there is no separate Oklahoma gift tax.
Q: What is portability and how is a portability election made?
A: Portability allows a married couple to share their federal estate tax exemption amounts so the surviving spouse can elect to claim and use any estate tax exemption remaining at the death of the first spouse. Portability is not automatically available. Instead, the portability election must be made on a timely filed federal estate tax return, which will be due nine months after a decedent's death. So even if an estate is under $5 million and there is no requirement for filing a federal estate tax return, it still may be in the best interest of the surviving spouse to file a federal return and make the portability election.
Q: How does the option of portability impact estate plans with marital or bypass trust planning already in place?
A: There are advantages and disadvantages of electing portability instead of establishing trusts at the first spouse's death. For those who have already implemented marital or bypass trust planning, there is now the question of whether to maintain this plan or make changes. No one answer will fit for all. Rather, each married couple should discuss with an adviser their specific needs and make a personal decision based on family, income and estate tax planning, asset protection and other considerations. One option might be to use disclaimer planning so that the surviving spouse will have a nine-month window in order to make a decision about using a bypass trust to save estate taxes.
Q: What changes have been made to annual exclusion gifts?
A: The annual exclusion for gifts made in 2013 has increased to $14,000. Another important gift option still available is the direct payment of certain qualified medical, dental and tuition expenses of the recipient. These payments are not limited in amount and can be made without using any annual exclusion or federal gift tax exemption, but special rules apply. For example, the payments must be made directly to the service providers.