Tax Code Changes Create Challenges
Inheritance taxes and estate planning are a growing concern for affluent baby boomers. What are some of the major issues?
In addition to the double step-up in basis on community property discussed above, the baby boom generation will benefit from some of the most generous estate tax loopholes in history. For example, married couples have complete spousal exemption from estate and gift tax when transferring property to each other. This has not always been the case.
For 2015, every person has a lifetime net gift and estate tax exemption up to $5.43 million. Considering that the top gift and estate tax rate is 40%, this exemption represents an enormous tax savings. Even better, under a recently introduced tax provision known as portability, when one spouse dies, the unused portion of his/her $5.43 million exemption can be transferred to the surviving spouse for his/her use in negating gift or estate tax. Thus, as a practical matter, a married couple as of 2015 can shelter $10.86 million in transferred property from gift and estate tax quite easily.
Note: Portability is not automatic. The surviving spouse must elect it by filing form 706 very soon after the death of the first spouse.
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