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Portability provision aids estate planning

On Behalf of | Nov 12, 2011 | Estate Planning |

Even those California residents who are young and healthy may benefit from estate planning. A good estate plan will maximize the size of the estate while minimizing the potential tax consequences for one’s heirs. Moreover, proper estate planning will reduce the need for litigation and help the estate to escape the probate process as much as possible.

Under current law, the estate is tax-exempt up to the first $5 million. That may sound like a lot, but people are frequently surprised by their net worth after they start counting up all their assets. Farm families in particular have seen their net-worth rise in recent years as land prices for farms climb rapidly.

However, prior to a law Congress passed in December 2010, those couples who did not engage in estate planning did not benefit from the full possible exclusion in instances where the spouse without much property died first. For example, if the first spouse died with only $1 million of property in their name and the second spouse died with $11 million of property in their name, then $1 million of the first spouse’s estate and only $5 million of the second spouse’s estate was tax-exempt. That’s a total of $6 million out of $12 million that was tax-exempt. But proper estate planning would have split the assets up evenly to ensure that $10 million of the $12 million was tax-exempt.

Fortunately, Congress made things somewhat easier in December 2010 for those who did not take the time to engage in estate planning. At the time, Congress passed and the President signed into law a “portability provision.” Under the new provision, the assets of the two spouses are effectively split up 50-50 no matter what. This reduces the overall tax burden on the estate.

However, the $5 million tax-exemption and the new portability provision ends after 2012. Even if Congress decides to extend both, California residents should still consider meeting with an experienced estate planning attorney. The attorney may be able to assist with ensuring the estate is not troubled with litigation and that the tax burden is as low as legally possible.

Source: The Wallaces Farmer, “Land Price Rise Affects Estate Plans,” Oct. 14, 2011

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