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Do you know whether you might need to file an estate tax return?

Readers may know that an estate tax return does not have to be filed for estates whose taxable value is below the estate tax exemption. For 2015, that amount will be $5,430,000.

For many estates, a filing may be unnecessary. Yet could there be another reason for filing an estate tax return? An attorney that focuses on wills and trusts knows that answer to be yes.

Specifically, a rule that became effective in January 2011 allows a surviving spouse to make a portability election for the unused portion of the first spouse’s estate tax exemption. The election is made on an estate tax return filed after the first spouse’s passing. For estates that otherwise would not have had to file such a return, there may be a simplified valuation procedure available.

The election is a valuable tool in estate planning. Imagine a scenario where the surviving spouse outlives the first spouse by many years. During that time, the value of assets such as real estate, securities, annuities and/or business interests may substantially increase. With a portability election, the surviving spouse may be able reap the benefits of that appreciation without estate tax consequences.

Of course, there are additional strategies for lowering the taxable value of an estate. Deductions for a mortgage or other qualifying debts may be available, as may be transfers to qualified charities. In the case of business interests, other reductions may also be available. Property placed in a bypass trust, a type of irrevocable trust, will also not count towards the estate’s taxable value. An attorney can help explain these estate-planning tools in greater detail. 

Source: Internal Revenue Service, “Estate Tax,” Nov. 17, 2014 

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