If you have between $2-12M and die before 2026, your spouse should know this

[Bekit]

Just watched this video about the upcoming change in estate tax rules in 2026, specifically Treasury Regulation Sect 20.2010-1 (c) (2) iii and Portability.

Following this advice could save your kids millions of dollars in taxes on your estate.

View: https://youtu.be/zbBbVwhbEEI


My recap from the video:

In 2020, the federal estate tax basic exclusion amount is $11.58 million. In 2026, the federal estate tax basic exclusion amount sunsets back to about $6 million ($5 million adjusted for inflation).

The estates of people who died in 2020 are not required to file a federal estate tax return if their gross estate is less than $11.58 million.

But let's play out a scenario and see how that works out.

Barry dies in 2020 and leaves his whole estate to his wife, Pam.

His estate is valued at $6M.

Barry & Pam had a total combined estate of $12M, but Barry's estate is worth $6M.

Pam goes to see the lawyer to settle the estate.

This can go one of two ways.

Wrong Way:
The lawyer says, "Barry's estate was $6M, and for people who die in 2020, the first $11.58M is exempt from the estate tax. Since Barry's gross estate is less than the exclusion amount, we don't have to file an estate tax return and you don't owe any estate tax. We're not required to send any information to the IRS about Barry's estate.

Now Pam has $12M.

Pam lives for 6 more years, and she dies in 2026, when our basic estate tax exclusion amount has reverted back to $6M.

Pam's estate has also grown to (let's call it) $17.58 M.

Pam's kids go to see the estate lawyer.

The lawyer checks the estate tax exclusion amount, and it's $6M in 2026, so $11.58M is subject to the 40% tax.

Therefore, the kids have to cough up a check to the IRS for $4,632,000.

That's a lot of money.

Better way:
Pam goes to see the lawyer, and she asks the lawyer make sure that they make an election for "Portability."

While there is no requirement that an estate tax return be filed on Barry's behalf (because his gross estate was less than the $11.8M exclusion amount), in order to take advantage of the portability election, it has to be filed in a timely manner (within 9 months after Barry's death).

Making the portability election will do the following:

When Pam dies, perhaps in 2026, then her estate, which could be worth $17.58M at that time, will get to take advantage of Pam's $6M basic exclusion amount, AND take advantage of Barry's $11.58M exclusion amount that Barry's estate didn't utilize.

That way, Pam can exempt $17.58M from the 40% estate tax instead of just $6M.

And Pam's kids have a tax bill of $0.


The failure in Scenario 1 to file the estate tax return and make the portability election when Barry died cost that family $4.6 million of unnecessary estate tax that shouldn't have had to have been paid.

So if you die before 2026, and you have between $2-12 million in your estate, and you leave it to your spouse, and your spouse could live past 2026, this is worth knowing.


To do this, look up Treasury Regulation Sect 20.2010-1 (c) (2) (iii) to check on this, and file the IRS Form 706.

 

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[CareCPA]

Depfofmz, O'n juqoph og tuniupi't itvevi ot xusvj nommoupt, vjiz jewi emsiefz duptamvif xovj e qsugittoupem (mexzis, edduapvepv, ivd)

Juxiwis, vjev fuit puv fotduapv vji gedv vjev vjot ot iydimmipv opgusnevoup.

Ov't emtu ep iydimmipv sinopfis vjev vey mext esi puv qisnepipv. Puv upmz dep vjiz ci djephif (epf gsiraipvmz esi), cav nepz ug vji nekus djephit nefi op 2018 epf 2020 fu jewi taptiv qisouft, itqidoemmz gus opfowofaemt.
Jotvusodemmz, vjiti ugvip hiv iyvipfif topdi ov't qumovodemmz quqames vu fu tu, cav vjisi't pu haesepvii.

Og zua vjopl zua xomm ci uwis vji vjsitjumf op vji gavasi (itqidoemmz xovj seqofmz-eqqsidoevoph ettivt), us og zua iyqidv e muxis vjsitjumf, vjisi esi xezt vu avomobi vsatvt vu veli efwepvehi ug vufez't iyinqvoup. Ovint dupvsocavif vu vji vsatv esi wemaif ev vufez't wemai epf duapv eheoptv zuas mogivoni iyinqvoup, epf vji gavasi wemai ot ittipvoemmz ohpusif xjip zua foi. (Puvi vjev O'n jiewomz tonqmogzoph jisi.)

O sinincis e tvusz gsun xjip O gostv huv uav ug dummihi epf opvu qacmod edduapvoph. Upi ug uas dmoipvt xet e guuf nepagedvasis xju jef e simevowimz johj wemai. Vji umf haz ev vji vuq uxpif emnutv emm vji tvudl, xjodj niepv og ji foif, jot loft xuamf jewi vu qez tactvepvoem opjisovepdi veyit.
Vji qsucmin ot, pu upi jef vjev lopf ug nupiz tovvoph esuapf, nutv ug vji xiemvj xet voif aq op vji catopitt. Vjot niepv vjiz xuamf jewi jef vu timm vji catopitt vu qez vji vey up opjisovoph vji catopitt.

Tuni mihem giit xisi qeof, epf tuni gopepdoem nepiawisoph xet qisgusnif, epf et muph et vjiz haz mowif gus e duaqmi nusi ziest, vji qsucmin duamf ci tumwif. Cav xjev ep exgam vjoph vu siemobi zua nez jewi vu timm vji genomz catopitt vu qez gus opjisovoph vji genomz catopitt!

Tvepfesf fotdmeonis: vjot ot puv mihem us vey efwodi. Fu puv edv up epzvjoph O'wi teof xovjuav duptamvoph e siem-mogi qsugittoupem.