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Portability of the Unified Tax Credit

Jun 8th 2015
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During a conference presentation on new tax laws and tax planning on June 8, Barry Picker, CPA/PFS, CFP, of Brooklyn, NY-based firm Picker & Auerbach CPAs PC briefly discussed estate tax and gift tax provisions, including the unified tax credit.

The unified tax credit, which went into effect in 2010, is so named because federal gift and estate taxes are integrated into one unified tax system. It is the credit for the portion of estate tax due on taxable estates. The surviving spouse gets to use the unused unified credit of the last deceased spouse, said Picker during a Monday session at the American Institute of CPAs (AICPA) Practitioners Symposium and TECH+ Conference in Orlando, Florida. The surviving spouse could, therefore, have a $10.86 million exemption for estate taxes.

For the surviving spouse to get the exemption, the deceased spouse would need to have made election on a timely filed estate tax return, he added.

Picker proceeded to provide the audience with the following five examples of how unified credit portability works:

Example No. 1. Harry dies and in his will leaves his entire estate to his wife, Wilma. Because Harry has a taxable estate of zero, Wilma gets his unused exemption, and will thus have a $10.86 million exemption, assuming no further cost of living increases. However, this could change if Wilma remarries.

Example No. 2. Same facts as example No. 1, except now Wilma gets remarried to John. Wilma dies before John. She still has a $10.86 million exemption.

Example No. 3. Same as example No. 2, except that John dies before Wilma. John has an estate of $6 million, which he leaves entirely to his children from his previous marriage. Because John has now used his unified credit, Wilma no longer has any unused credit from her last deceased spouse. Wilma’s unified credit is back to $5.43 million.

“This can lead to some very interesting estate plans in the ‘Trump Towers for Senior Living,’” Picker said.

Example No. 4. This is what Picker called the “I hate you” estate. Harry dies with an estate valued at $2 million. He leaves the estate to his children from his first marriage, and his son is the executor. The son hates Harry’s second wife, Wendy, and refuses to file an estate tax return. Or he files Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and he elects out of portability.

“Does Wendy have recourse?” Picker asked the audience. “Nobody’s litigated this yet, but it’s a valid question.”

Example No. 5. Harry’s will leaves everything to Wilma. Form 706 is filed for Harry’s estate. Wilma dies and her estate incurs an estate tax that would have been reduced or eliminated had Wilma’s estate had filed a Form 706.

“Who is going to get sued?” Picker asked. “You have to be aware of that. If your wife doesn’t want to file a 706, you have to get that in writing.”

The AICPA Practitioners Symposium and TECH+ Conference continues through June 10.


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By Georgeous George
Jun 25th 2015 20:12 EDT

exp.5 is poorly stated. i presume the irs claimed a tax on the gross estate. i always thought the irs must file an appropriate return following the 5 mil. exempttion allowed for wilma. as to a lawsuit, harrys dead and wilma owes the tax. there was no mention of an executor but the judge ain't gonna make him pay a tax bill that's wilma's.and, the executor ain't gonna sue himself; so case closed.

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