IRS Gives Elites Time To Shelter Their Wealth From Estate Taxes

(FiveNation.com)- After the passing of a spouse, the federal government is providing widows and widowers more time to deal with the complicated aspects of the inheritance tax.

When one partner in a married couple passes away, the other spouse frequently receives all or a portion of the dead person’s inheritance. The surviving spouse is exempt from paying taxes on the funds. They can also carry over the deceased person’s unused estate tax exclusion if they file a tax return on the dead person’s estate and choose portability, a term used by the Internal Revenue Service.

 

Due to the step-up in tax basis for assets included in the surviving spouse’s taxable estate upon death, portability may also enable improved income tax planning. It’s important to note that because of the additional estate and generation-skipping transfer tax savings it might offer, a credit shelter trust or other trust preparation is frequently advised for big estates. Trusts can also benefit from a variety of non-tax benefits.

 

The applicable portability rule has one caveat: for the surviving spouse to inherit the “Dead Spouse Unused Exclusion” (DSUE) through a portability election on that return, a Form 706 federal estate tax return for the deceased spouse must be submitted. Only estates with gross assets beyond the decedent’s applicable exemption at the time of death are legally obligated to submit an estate tax return, regardless of whether they choose to utilize the DSUE. For instance, there would be no legal requirement to file an estate tax return if a spouse passed away this year, leaving the surviving spouse $12 million in assets (with no past gifts). Unfortunately, the surviving spouse cannot use the DSUE if an estate tax return is not filed, which might result in the surviving spouse’s estate paying close to $5 million in taxes that could have been avoided.

 

Families with substantial wealth may save millions of dollars in taxes if they can claim the DSUE through a late filing. This is especially relevant given the many exemptions ($12.06 million per person with inflation adjustments via present law). For anyone passing away in 2026 or after, these present exemptions will be cut in half. Under the current law’s substantial exemptions, many families would not have an estate tax issue, but they might likely owe estate tax if the second spouse passes away once the exemptions are halved. In some cases, claiming the DSUE of the first-to-die spouse might guarantee that no estate tax is required or, at the very least, result in considerable estate tax savings.

 

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