A common concern for those looking to plan for estate administration is tax liability. Usually people prefer estate planning strategies that minimize tax liability in order to leave the maximum amount of assets to intended beneficiaries. Therefore, it is best to understand the estate tax laws in order to best take advantage of current rules and regulations in California.
One rule that is designed to help married couples minimize tax liability is the "portability" rule. Usually an individual is allowed $5.43 million in estate tax exemption. This is the value of assets that a person is allowed to pass to beneficiaries without the assets being liable for estate taxes. Before the portability rule, any unused exemption amount was lost, unless the person's estate utilized trusts to shelter the amount not utilized.
Now with the portability rule, one's surviving spouse can use one's leftover tax exemption after one's death. However, there are some time requirements for obtaining the exemption. One important requirement that many people miss is that the estate tax return needs to be filed within nine months of the date of one's death. In some cases, an extension for time to file the estate tax return can be granted.
At first, one may decide that this is not necessary since the combined estate is substantially smaller than the exemption amount. However, a surviving spouse's estate may grow significantly larger. This could result in estate tax liability, which can be avoided through the portability rule.
Therefore, it is always best to play it safe and ensure that one's intended beneficiaries are fully protected from having to unnecessarily pay estate taxes in California. However, tax issues are just one estate planning concern for most people. One also has to ensure that the assets themselves are properly distributed to intended heirs. Without the correct legal documentation one's intended heirs may end up losing access to one's estate assets.
Source: meridianstar.com, "Portability can simplify estate planning", David Compton, October 4, 2015