Written by: Mike Harter, CPA/PFS, CFP®

At the end of 2012, Congress provided a bit more certainty to our estate tax laws.    The ATRA of 2012 permanently extends the estate and gift tax provisions of both EGTRRA and the 2010 Tax Relief Act.   Under ATRA, the applicable exclusion for 2013 is $5.25 million (adjusted for inflation) and the maximum rate is 40%.

What this means to most folks is that if your gross estate (not net after debts) is less than $5.25 million, then you will not be paying any estate tax nor are you required to file the estate tax return (Form 706) reporting your assets.

However, you may want to consider filing Form 706 even if your spouse’s assets do not exceed the $5.25 million.    As part of ATRA 2012, is the permanent extension of the provision allowing the portability of a decedent’s unused exclusion amount to a surviving spouse.     Form 706 is required to be filed if you want to transfer the used exclusion to the surviving spouse even if you fall well below the $5.25 million.

What is the advantage of securing the unused exclusion of the deceased spouse?     Each person is allowed the $5.25 million exclusion.     So a married couple can effectively shelter assets totaling the two exclusion ($10.5 million) if properly planned and executed.     So if you think that the surviving spouse may eventually exceed their personal exclusion, you may want to consider filing Form 706 and adding the unused exclusion to theirs.

A couple of cases for transferring the unused amounts

  • If you think that you will accumulate or have appreciation on your current assets to exceed the exclusion.
  • A future inheritance that may put you over the limit
  • Reservations about gifting away your assets to stay below the exclusion amount

So before you discount the need to file Form 706, consider the future and take advantage of a potentially powerful tax shelter for you and your family.