How does the ATRA affect estate planning?

Estate planning - ATRA - Boomfish Wealth Group, LLCI take time each day to check up on any news or bills that could affect the estate planning process.

Recently, I found an article from Forbes that discusses the newest paradigm for estate planning: estate tax portability.

On this past New Year’s Day, Congress passed the American Tax Relief Act of 2012 (ATRA). On January 2, President Obama signed the act.

One of the most noticeable changes of the ATRA is making the “portability” of the applicable exclusion amount between spouses permanent. This was first enacted by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

First off, I’ll explain what portability is and what portability does.

Portability allows the first spouse to die to transfer his or her unused estate tax exclusion amount to the surviving spouse. The surviving spouse can then use it for his or her own estate tax or gift purposes.

To go even more in-depth, if the estate of the first spouse to die makes the appropriate portability election, the surviving husband or wife’s applicable exclusion amount could be calculated like this:

Surviving spouse’s basic applicable exclusion amount + Aggregate deceased spousal unused exclusion (DSUE) = Applicable exclusion amount.

Any applicable exclusion amount of the first spouse to die that is used to reduce the estate tax liability of that husband or wife’s estate tax reduces the amount of the exclusion amount that carries over to the surviving spouse.

I realize that this act, like many laws and regulations regarding estate planning, can be extremely confusing. In reality, estate tax portability is only the tip of the iceberg of all ATRA effects to estate planning.

If you have any questions regarding the American Tax Relief Act of 2012, how it may affect you, or any other questions about the estate planning process, feel free to contact me.

Leave a Comment