Tuesday, January 4, 2011

Estate taxes for someone who lost a spouse in 2010?

For those whose spouse died in 2010, if the deceased's estate did not use all of the $5 million exemption, then the remainder can carry over to the surviving spouse. So if the deceased spouse's share of the estate was worth $2 million, then the unused estate tax exemption of $3 million can be used by the surviving spouse and added to the surviving spouse's $5 million exemption. Thus, if the surviving spouse dies in 2011 or 2012, the estate can pass $8 million estate tax free. However, there is no "stacking" of deceased spouses unused estate tax exemption if the surviving spouse remarries. Surviving spouse cannot pass the unused exemption to the estate of a new spouse.

New Estate Tax Law

There is estate tax is now unified with the gift tax-- $5 million per person. However, it applies only for 2011 and 2012. Couples need to keep their option to have an an irrevocable trust when the first spouse dies, just in case Congress does not extend the unified credit and the $1 million exclusion from 2002 comes back. For the estate of anyone who died in 2010, the $5 million automatically applies unless the 2010 law is elected. The new law allows for a step-up in basis which avoid capital gains tax, but applies a 35% tax for any assets over $5 million.