Start 2015 Tax Planning Now! Part 3

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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.

Next:  Part 4 (Final)

Missed a Part?  See Part 1, Part 2

David Ellis is the managing partner of Ellis & Ellis, CPAs, Inc. located in Pasadena, California. He has over 25 years of experience in the practice of Divorce, Trust/Estate, and other family tax matters. He is an advisor in matters pertaining to Trust, Estate, and Corporate Taxation to the Los Angeles County Office of the Public Guardian. The firm also provides other general tax services and IRS representation. He earned his Bachelor’s Degree from the University of Southern California in Communication Arts and Sciences. He is a frequent writer and speaker on various tax subjects, and has provided continuing education services to other CPAs and tax professional in the area of Divorce, Trust, and Estate Taxation. An article that he recently co-authored entitled The Tax Consequences of Dividing Marital Property can be found in the December 2014 issue of Practical Tax Strategies, a national professional tax publication.

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