Death Tax: Portability Election for Surviving Spouse

If your spouse has died during the year, you should consider having their estate file an election to pass their unused estate tax exclusion amount to the surviving spouse. Each taxpayer is allowed a lifetime exclusion from estate tax. The amount of the lifetime exclusion is adjusted each year for inflation. . If one spouse dies, the executor of their estate may elect to pass their unused exclusion amount to the surviving spouse. Making this election may be in the best interest of the surviving spouse even if you don't expect your estate to be higher than the single exclusion, since the future of the surviving spouse's estate is unknown. The election is made by filing an estate tax return (Form 706) for the deceased spouse's estate, which is due within 9 months of the decedent's death. A six month extension may be granted if applied for before the due date. To find this year’s lifetime exclusion, please see the list provided on our website under Resources titled “Annual Updated Tax Numbers” for this and other limits, thresholds, and rates that change annually.

Annual Gifts

You can make annual gifts up to a certain threshold per individual to as many recipients as you wish, free of gift and income taxes. The threshold changes annually; for this year’s threshold, see “Annual Updated Tax Numbers” under Resources on our website.  The threshold doubles if the gifts are made with jointly owned property with your spouse. You can also make larger gifts by using part of the lifetime federal gift allowance, and the amount also changes annually and can be found on our website for the current year.  Although this will reduce the amount your estate will have available, it can pay off if you expect the gifts to appreciate before you die. If you believe you may have an estate tax liability, consider contacting us to prepare a computation for you. One additional note: If you are making education gifts for your children or grandchildren, you have two additional choices. First, you can make direct payments for tuition at any level of education, in any amount - gift tax free. The only requirement is the tuition payments must be made directly to the school. So, if you have young grandchildren in private school, consider paying their tuition. Second, you can accelerate 5 years' worth of gifts by gifting to a 529 plan.

Will Provisions for Children

Do you want all of your assets to go to younger heirs on your date of death? Most people choose to put the funds in trust for young beneficiaries until they reach deemed ages of financial competence. For example: You might provide in a trust that your children receive 30% of their inheritance at age 25, 30% at age 30 and the remainder at age 35. Of course the Trustee can be given the authority to take out assets before these ages to provide support for the children including paying college expenses. Consult your attorney for assistance with these and other legal matters.


If you do not have a current will, the State has written a will for you. This could result in financial hardship to your family and a division of property in a manner inconsistent with your wishes. Further, laws change periodically. As a result, wills should be updated at least every 10 years.

WITH CHILDREN: In North Carolina, if a husband with a wife and 2 young children dies without a will, the spouse receives $15,000 and ONLY one-third of all of the husband's possessions. The remaining two-thirds goes to the children. In addition, since the children are minors, the wife must go to court and report each year how she is handling the children's funds.

WITHOUT CHILDREN: In North Carolina, if a husband and wife have no children, but the husband has living parents, if he dies, all cash and property in excess of $25,000 is split with the husband's parents. Contact your attorney for will preparation and advice.

Beneficiary Designations and Account Titles

You should review your beneficiary designations on your retirement accounts, IRA accounts, life insurance contracts, wills, etc. to make sure the primary and contingent beneficiaries are as desired. Death, divorce, estate planning and other issues can create a need to change beneficiaries. Failure to change your beneficiary designations can create adverse tax, financial and other hardships.

Special Needs Trust

A special needs trust (SNT) can be established to provide for a disabled person's needs beyond the support from the government. There are various government programs earmarked for the support of a disabled individual, including Supplemental Social Security (SSI), Social Security Disability Income (SSDI),

Medicare, and Medicaid. Generally, these benefits are classified into two categories: needs-based and non-needs based. Non-needs based benefits, such as SSDI and Medicare, could be provided to a disabled person regardless of the recipient's level of income or wealth. SSI and Medicaid are needs-based, and as such, there are restrictions on the amount of wealth and income a recipient can have. The purpose of a SNT is to supplement, not to replace the above mentioned public benefits. If you would like more information about establishing a special needs trust, please contact our office.

Consider a Charitable Remainder Trust (CRT)

A CRT can save you taxes, provide you with income during your lifetime, provide assets to a charity or charities of your choice and, if desired, cost your heirs nothing. Example: You contribute assets, such as highly appreciated stock, to a trust. You receive a current tax deduction equal to the fair market value of the assets contributed, discounted for the delay until the charity is likely to receive them. The trust pays you its annual income (such as dividends). So, during your lifetime, you have lost only the ability to sell the assets and use the after-tax cash. If you wish to completely protect your heirs from loss, you can use a portion of the annual income to fund an insurance policy to provide your heirs with the same amount they would have received. If you would like to create a charitable remainder trust, contact your financial advisor for a more detailed discussion of CRT's.

Consider Naming Charity as Beneficiary of a Life Insurance Policy

Life insurance premiums paid for charitable giving are tax deductible. There is a new way to provide an endowment fund for a favorite charity: life insurance. How does it work? You simply purchase a life insurance policy designating a specific charitable organization as the beneficiary. Annual premiums paid are tax deductible. If this idea interests you, consider contacting your financial advisor for assistance.

Consider Naming Charity as Beneficiary of Your IRA to Save Estate Taxes and Heir’s Income Tax

If you plan to leave a significant amount of money or assets to a charity, consider making the charity the beneficiary of an IRA account. If an amount is left to the charity from your estate, the income from the IRA will be included in the income of the estate. However, if you make the charity the beneficiary of an IRA directly, the income is not taxable to the estate or the charity. Leaving an IRA to a charity will also reduce the minimum distribution requirements and related income taxes your heirs will face. In order to accomplish this, you may need to roll large IRA accounts into smaller ones to designate certain amounts for specific charities. If you need help with these rollovers, contact your financial advisor.

Life Insurance Trust to Reduce Estate Taxes

One common mistake in estate planning is not making plans to shelter taxable life insurance proceeds from estate taxes. Life insurance proceeds can push your total estate value beyond the nontaxable amount causing the difference to be taxed at a +/- 50% rate. This can be avoided by having the policy owned by your wife, children, or better yet, a life insurance trust. You can provide the money to pay the premiums through annual gifts. When you die, the proceeds will not be part of your estate.

Life Insurance for Estate Taxes

If you think you may have an estate tax liability in the future, consider purchasing a "second-to-die" life insurance policy which pays out when the second spouse dies. The proceeds of this policy can be used to replace the inheritance lost due to estate taxes.

IMPORTANT: This policy should not be personally owned (or it will go into the taxable estate). The policy should be in the name of an heir or trust, which must also pay the policy premiums. However, you can gift cash to cover the premiums each year. Consider contacting your financial advisor to assist you in purchasing the most appropriate insurance policy to help you preserve your estate.

IRA Beneficiary - Spouse vs. Other Family Members

Most people leave their IRA to their spouse. But, if your spouse is adequately provided for, you may want to leave some or all of your IRA money to your children or grandchildren. You will get the greatest benefit from the IRA if you leave it to a grandchild since the period for paying the benefits out of the tax favored account will be lengthened.

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