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The estate tax exemption is the dollar amount per indi- 1During 2010, as a result of the sunset provision in the estate tax law,
the ability to step up cost basis on inherited assets was temporarily
vidual that can be sheltered before estate taxes apply. suspended and replaced with modified adjusted cost basis treat-
Generally, with proper planning, a married couple would ment. This allowed non-spouse beneficiaries to apply an aggregate
of $1.3 million toward increasing the cost basis of assets within the
be able to shelter a total of $10 million from the reach of estate (spousal beneficiaries could apply a total of $3 million toward
the estate tax. While the new tax law actually applies the increasing cost basis of assets).
A new benefit for surviving spouses: Does this mean that only families with significant wealth
portability need to focus on estate planning? The reality is that
The 2010 tax law introduced a new provision that allows proper estate planning extends well beyond minimizing
surviving spouses to utilize any unused portion of or preparing for estate taxes. A comprehensive estate
their deceased spouse’s estate tax exemption — up to planning strategy offers the following:
$5 million — to reduce their own taxable estate. Note
•Orderly transition of wealth to heirs or charitable concerns
that a special election is required upon the death of
the first spouse in order to utilize this option, and that •Means to avoid a lengthy and costly probate process
previously claimed exemptions are not transferable •Planning for minors or other extended family members
should the surviving spouse remarry.
•Steps to transfer decision-making responsibilities in light
With this new provision, is exemption planning through of unforeseen circumstances
the use of trusts (commonly referred to as “credit shelter
•Living will or health-care proxy declarations, which can
trusts” or “A/B trusts”) still beneficial? For many families,
facilitate decisions around medical treatment or end-of-
trusts are still an attractive option for several reasons:
life wishes
•The portability provision applies to estates only through
•Documenting wishes for final arrangements
2012 with no guarantee it will be available in the future
•Even if the portability provision is extended in the future, Take the first step: Talk to your financial
it does not shelter any appreciation of assets from the advisor today
estate tax between the time the exemption is claimed Your financial advisor can help you take the first step in
(upon the death of the first spouse) and the death of the establishing an estate plan by reviewing your assets and
second spouse accounts, identifying any potential gaps, and determining
a strategy to address possible tax pitfalls. Together, you
•Credit shelter trusts, when established properly, offer
should consult an attorney on the execution of legal docu-
asset protection from creditors, meaning that the trustee
ments, which is essential in ensuring that family members’
can’t be forced to liquidate or distribute trust assets to
needs and your legacy wishes are met.
satisfy creditors of trust beneficiaries
43,540
3,600
6,460
This information is not meant as tax or legal advice.
$1 million $3.5 million $5 million Please consult with the appropriate tax or legal
Source: Tax Policy Center, “Taxable Estates, Estate Tax Liability, and professional regarding your particular circumstances
Average Estate Tax Rate, By Size of Gross Estate,” December 2010. before making any investment decisions.