August 23, 2011
On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (for this article we willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. refer to this Act as the “New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law”), which made some key changes to the federal estate and gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. laws. Notable were an increase to the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. and gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exemption amounts to five million dollars each, and the introduction of the new concept of “spousal portability”. This article offers a brief overview of the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law, focusing on the creation and funding of “shelter” or “bypass” trusts and the new “spousal portability” law.
A Concern of Duration
One of the biggest concerns of the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. is the fact that it is only valid through the end of 2012. If Congress and the President take no further action, the tax and gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. law willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. revert to the former law which allowed lower estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. and gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exemptions of only one million dollars. Moreover, there is no guarantee that a newer law willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. not disregard the newly introduced “spousal portability” provisions.
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A Brief Overview of Spousal Portability
So what exactly is the new “spousal portability” law contained in the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law? For the purposes of this article, “spousal portability” can be summarized as follows:
The spousal portability law doubles the amount of the surviving spouse’s available estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption without having to create a special “family” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. prior to the first spouse’s death. In short, the surviving spouse can receive all of the remaining estate and gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exemption of his or her deceased spouse. The unused estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption of the deceased spouse is available for use by the surviving spouse at death; and the remaining gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exemption is available to the surviving spouse during his or her lifetime.
What does that all mean?
The surviving spouse can now pass up to ten million in assets, upon the surviving spouse’s death, estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free. However, as with most tax planning matters, the increased spousal amounts for gift and estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. issues is not automatic. The executorFor Wisconsin see Personal Representative. of the deceased spouse’s estate must file a properly drafted estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. return, typically within nine months of the death of the first spouse. If this estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. return is properly filed, the surviving spouse can pass up to ten million dollars, estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free, although the exact amount willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. very from estate to estate depending on the beneficiaries of the deceased spouse. The full ten million dollar estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exclusion may not be available to all surviving spouses.
Under the prior law, neither the gift exemption nor the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption of the deceased spouse could be used by the surviving spouse. However, under that prior law, trusts could be used to “shelter” or “bypass” assets of the first spouse to die, as a method of increasing the amount of protected assets up to $10 million. In order to accomplish this under the prior law, the married couple would have to engage in proactive planning to segregate those assets at the death of the first spouse and set up a “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. That bypass trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. would hold assets outside the surviving spouse’s estate upon the surviving spouse’s subsequent death. In short, these assets held in the “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. would not be counted in the surviving spouse’s taxable estate at death. The “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. operates the same way under the current New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law.
Proactive Planning under the New Estate Tax Law
There is a commonly held misconception that the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law eliminates the need to create a special trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., such as a “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to preserve assets and maximize the amount of assets that can pass estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free on the surviving spouse’s death. If fact, there are several significant reasons for proactive planning despite the existence of spousal portability in the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law. A number of those reasons are detailed below.
Expiration of the New Estate Tax law
The spousal portability is only available until the end of 2012 under the current New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law.
Possible Future Changes in the Law
WillA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. there be a new different law that does not recognize spousal portability in the future? With the current environment in Washington, speculation about possible outcomes is difficult at best and could certainly prove very costly. Congress and the President could eliminate spousal portability entirely, or they could make adjustments or changes that would reduce the benefit of spousal portability. The use of a “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., funded at the death of the first spouse to die, would lock in the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption of assets placed in this type of trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., thus eliminating future estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. on the assets held in the “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. Use of the “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. eliminates the concern of possible future changes in the spousal portability law.
Inflation and Asset Appreciation
The New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. law indexes the estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption for inflation beginning in 2012. However, there are three problems with relying upon this for spousal portability purposes. First, the current law expires at the end of 2012, and there is no certainty that the new law willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. continue to index for inflation. Second, the spousal portability estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. exemption is not indexed for inflation. Third, the assets held by the surviving spouse may appreciate resulting in estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. liability due to increases in the assets that were transferred to the surviving spouse instead of to a ‘shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. The use of the “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. would eliminate these concerns. The assets placed in the “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can appreciate without becoming part of the surviving spouse’s taxable estate, thereby eliminating the concern of estate taxes on the assets placed into such a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. upon the surviving spouse’s death.
Creditor Protection
The spousal portability law does not provide any creditor protection to the surviving spouse. The use of a “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. provides enhanced creditor protection for assets held by the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. This can be important, especially if there is concern that one’s assets could be lost to creditors or future claimants or lawsuits.
State Tax Laws
WillA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. the state in which the surviving spouse lives recognize spousal portability at the time of the surviving spouse’s death? In Wisconsin, there currently is no estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax.. However, this may change and Wisconsin and other states may not adopt the spousal portability provisions, since the adoption of spousal portability willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. result in less income to states that adopt spousal portability. The “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is an accepted estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. technique in states such as Wisconsin.
There are additional concerns with respect to overreliance on the spousal portability law that are beyond the scope of this article. Suffice it to say that concerns and issues arise with the spousal portability law for Generation Skipping Tax (GST) issues and remarriage of the surviving spouse. Upon remarriage, the surviving spouse may have to use the second spouse’s spousal portability amount, if the second spouse predeceases. This amount could be less than the first spouse’s portability amount.
Advantages of Spousal Portability
There are a couple of advantages of the spousal portability law that are worthy of mention here.
First, the surviving spouse willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive a step-up in basis on eligible property in his or her name, that the spousal portability law allows for ease of use as compared to a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., and the spousal portability law does not require any ongoing fiduciaryA person or company that manages money for a person or beneficiary, such as an agent or attorney-in-fact under a Durable Power of Attorney, a Trustee under a Trust, or a Personal Representative under a Will. A fiduciary normally has an obligation to act in good faith and in the best interest of the person who they represent and are governed by laws and a standard of care and should act in a prudent manner. In Wisconsin this term is most often used to refer to a Personal Representative or a Trustee. income tax returns. A “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. require the yearly filing of fiduciaryA person or company that manages money for a person or beneficiary, such as an agent or attorney-in-fact under a Durable Power of Attorney, a Trustee under a Trust, or a Personal Representative under a Will. A fiduciary normally has an obligation to act in good faith and in the best interest of the person who they represent and are governed by laws and a standard of care and should act in a prudent manner. In Wisconsin this term is most often used to refer to a Personal Representative or a Trustee. income tax returns (1041 returns).
Second, and perhaps more importantly, the spousal portability law can also help, along with other planning such as disclaimers, if there was no or limited advance planning at the time of the death of the first spouse.
Conclusion
When considering whether to create a “shelter” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., there is no cookie cutter solution. Each client and circumstance is unique. At Wokwicz Law Offices, we like our clients to make an informed decision, based on a understanding of the advantages and disadvantages of (1) doing nothing, (2) funding a “shelter” or “bypass” trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. or (3) taking advantage of the spousal portability law and the New Estate TaxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. Law.
We invite you to contact us for assistance in working through the maze of the current estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. law and possible advance planning prior to death or after death planning.