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Estate Tax Planning

Without careful planning, much of your life’s legacy could be lost to estate taxes. While a simple will can provide for the transfer your estate to your loved ones, it does not have special provisions for advanced estate tax planning.

The Federal Estate Tax: Exemptions & Rate
Federal estate tax laws were updated in 2013 as part of the American Taxpayer Relief Act which provides for an exemption of $5.25 million.  This means that each individual can transfer up to $5.25 million in assets free of federal estate taxes.   The federal estate tax exemption, also referred to as applicable exclusion amount, is adjusted annually for inflation.  

The taxable value of the estate is calculated by adding up all of the assets owned by the individual and then subtracting all of his or her liabilities.  Additional deductions can be taken for qualified charitable deductions as well as administrative and legal costs involved in settling the estate.

The tax rate for estates exceeding the exemption amount is 40% and is applied to the taxable estate value in excess of the exemption amount of $5.25 million.

The Federal Estate Tax: Understanding Portability
In addition to the individual exemption, married couples enjoy an unlimited deduction for transfers to one another. While this is great news for many couples who choose to leave their estate to each other, prior to portability, it resulted in a forfeiture of some of the individual estate tax exemptions upon the death of the second spouse.  

For example, this occurred when a husband left $3 million of his individually-owned assets to his surviving wife who already had $5 million herself, bringing her total net worth to $8M.  The bequest to his wife is not subject to estate taxes because it qualified for the unlimited marital deduction.  After some time, the wife also passes away, leaving everything to the children.  While her estate can take advantage of her individual exemption of $5.25 million, the rest of her estate could be subject to estate taxes because her husband’s individual exemption was not fully utilized.

 To address this issue, the current estate tax law allows for “portability” of individual exemptions between spouses.  Stated another way, estate tax portability enables the surviving spouse to utilize the unused portion of the estate tax exemption of the first spouse to die.   Portability is not automatic. To take advantage of it, an estate tax return must be filed with the IRS within 9 months of the passing of the first spouse, even if there are no taxes due at the time.

There are also special issues to consider when a surviving spouse remarries.

An alternative to relying on portability is utilizing the special planning tool referred to as a credit shelter trust (also referred to as a bypass or A-B trust).  If properly established, such trusts work much in the same way as portability, but do not require filing of an estate tax return after the passing of the first spouse.  

Special Planning for High Net Worth Individuals
Individuals and families with significant net worth might still have taxable estates even if they take full advantage of their respective exemptions.  For these individuals, there are a variety of advanced planning techniques that can be crafted to help reduce the estate tax burden, such as strategic gifting plans, life insurance trusts, personal residence trusts and grantor retained annuity trusts.  

Tax planning strategies are inherently complex, but our firm can help you establish a comprehensive plan that will allow you pass on as much of your hard-earned assets as possible to your loved ones and beneficiaries.


N. Dean Hawkins & Associates, Inc. assists clients throughout the Dallas metropolitan area, including Dallas, Collin, Denton, Kaufman and Rockwall counties.



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12801 N. Central Expressway, Suite 540, Dallas, TX 75243
| Phone: 972.934.2830

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