Encinitas,
 San Diego County

The American Taxpayer Relief Act of 2012 (ATRA) eliminated over a decade of Estate Tax or Death Tax indecision.  The 2012 exemption level of $5 million, adjusted for inflation in 2013 to $5.25 million, will remain in place.  A change did occur with the tax rate on amounts exceeding the exemption level.  The rate was previously 35%, but now the Federal Estate Tax or Death Tax rate will be 40% on amounts over $5.25 million per individual, adjusted for inflation. 

Another useful tool that was preserved is Portability.  Portability means if the first spouse to die does not use their entire Federal Estate Tax exemption amount of $5 million, the surviving spouse can elect portability to have the unused portion applied to their estate.  This allows a married couple to effectively transfer approximately $10 million in assets before being subjected to the Estate Tax. 

       The biggest issue with portability is that an election must be made on the Federal Estate Tax Return for portability to take effect.  Currently, this means the surviving spouse would have to file the Estate Tax Return-Form 706 to elect portability, even if no tax is due.  The 706 must be filed within 9 months of the date of death or obtain a 6 month extension.  If not, the election will be lost.      

There is no Estate Tax imposed by the Franchise Tax Board of California.  However, Trust Administrators, Executors and Administrators need to be mindful of other taxes that may be due even if the decedent’s estate was below the Federal Estate Tax Exemption.  Other taxes that will likely need to be addressed are: Final Income Tax Returns and Fiduciary Returns. 

 

CIRCULAR 230 DISCLOSURE: Any Federal tax advice contained herein is not written to be used for, and the recipient and any subsequent reader cannot use such advice for, the purpose of avoiding any penalties asserted under the Internal Revenue Code. If the foregoing contains Federal tax advice and is distributed to a person other than the addressee, each additional and subsequent reader hereof is notified that such advice should be considered to have been written to support the promotion or marketing of the transaction or matter addressed herein. In that event, each such reader should seek advice from an independent tax advisor with respect to the transaction or matter addressed herein based on the reader's particular circumstances.


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