Virginia Beach Estate Tax Planning Attorneys

Helping Clients Plan for Death Taxes

The IRS will want to review your estate when you pass away to ensure you don’t owe them that one final tax: the federal estate tax. Whether there will be any tax owed depends on the size of your estate and how your estate plan is structured. Although there are estate and inheritance taxes that you need to be aware of, there are many effective strategies that our talented lawyers can help you implement to reduce or eliminate death taxes. However, you need to start the planning process as soon as possible make sure your strategy is properly executed. Without careful planning, much of your life’s legacy could be lost to estate taxes.

How Are Estate Taxes Determined?

The taxable value of your estate is calculated by adding up all the assets you own when you die and subtracting any liabilities from that total. Additional deductions can be taken for qualified charitable deductions as well as administrative and legal costs involved in settling the deceased’s estate. The tax rate for estates exceeding the exemption amount is 40%. This rate is applied to the taxable estate value that exceeds the exemption amount.

Understanding Portability

Married couples have the benefit of the unlimited deduction for transfers to one another. Although this can benefit some couples who choose to leave their estate to each other, without proper planning, it can result in a forfeiture of some of the individual estate tax exemptions after the second spouse passes away.

For example, if a husband leaves $3 million of his individually-owned assets to his surviving wife who already has $5 million herself, her total net worth would be $8 million. The bequest to his wife is not subject to estate taxes because it qualifies for the unlimited marital deduction. After some time, the wife also passes away, leaving everything to the couple’s children. While her estate can take advantage of her individual exemption of $5.25 million, the rest of her estate could be subject to estate taxes because her husband’s individual exemption was not used.

However, the current estate tax law allows for “portability” of individual exemptions between spouses to address this issue. Estate tax portability gives the surviving spouse access to the unused portion of the deceased spouse’s estate tax exemption. Portability is not an automatic function. If you want to take advantage of it, you must file an estate tax return with the IRS within nine months of the passing of the first spouse, even if there are no taxes due at the time.

Credit Shelter Trust

If you don’t want to rely on portability to avoid taxes, then you might want to consider using a credit shelter trust as an alternative. If properly established, a credit shelter trust works similarly to portability but doesn't require filing an estate tax return after the passing of the first spouse.

Tax planning strategies are inherently complex, but our experienced attorneys at TrustBuilders Law Group can help you establish a comprehensive plan that will allow you to pass on as much of your hard-earned assets as possible to your loved ones and beneficiaries. Call (757) 500-5135 today to request your free consultation.