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How do jointly owned assets affect an estate plan?

On Behalf of | Apr 13, 2015 | Wills

Jointly owned assets in a marital estate are usually transferred automatically to the surviving spouse. Said another way, probate is typically unnecessary for jointly owned assets when at least one owner is still alive.

However, the existence of jointly owned assets does not mean that a surviving spouse is necessarily off the hook for filing an estate tax return. The reason: Estate tax law continues to evolve. 

Specifically, the Internal Revenue Service is reportedly finalizing regulations on portability, which is the legal mechanism of allowing a surviving spouse to utilize any unused portion of the deceased spouse’s estate tax exclusion. Portability became effective in 2011. In order to elect portability, however, the surviving spouse may need to file an estate tax return after the death of the first spouse, even if no estate taxes are due. 

For many estates, chances are that the deceased spouse may have an unused portion of the estate tax exclusion, considering that the amount is $5.43 million for 2015. Even if a surviving spouse estimates that his or her assets will also fall below that exclusion threshold, it may be a wise safeguard to elect portability. There’s no way of knowing whether the exclusion will continue to remain as high as its current level. If lawmakers lower it in future years, a surviving spouse may find portability very beneficial.

According to a recent article, unfortunately, many executors are unaware of the need to file an estate tax return in order to elect portability. This is an example of why it is important to continually update estate-planning documents with the help of an attorney, even in the example of a surviving spouse. Notably, the IRS is reportedly considering a revision that would allow a short form estate tax return for electing portability, instead of the 31-page current Form 706 estate tax return.

Source: Forbes, “The Surviving Spouse Estate Tax Trap,” Ashlea Ebeling, March 25, 2015


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