As part of an estate tax law
passed by Congress in 2010, couples can utilize a marital deduction to reduce the value of their estate and use both of their personal estate tax exemptions. However, the use of that law may have caused some confusion for some households.
Under the rules, when one member of the couple dies, they can pass their assets to their spouse, while using their own personal tax exemption to reduce the future taxable value of the estate. When the second spouse dies, they can use their own personal exemption as well.
Prior to this law, one spouse was able to pass their assets to the other tax-free. However, the remaining spouse would only have one personal exemption to use unless they utilized Bypass Trusts or other financial planning measures.
However, as the Wall Street Journal notes, the estate administration deadlines surrounding the law mean that the executor of the estate must file the estate-tax return quickly in order to take advantage of the benefit. Should they miss the deadline, that second exemption may not be available.
“This could easily happen to the owners of a farm or small business whose advisers aren’t estate-tax specialists,” Tom Ochsenschlager, of American University’s Kogod Tax Center, told the Journal.
The proper use of estate tax law becomes even sharper with the federal exemption still currently scheduled to drop from $5.12 million to just $1 million on January 1. While the spousal estate-tax return law would also need to be extended by Congress, analysts told the paper they expected it to remain in place.