Avoidance of estate taxes is one consideration in estate planning, but the estate tax system only applies to the wealthy. The income tax, however, applies to EVERYONE, and improper income tax planning often creates unnecessarily large income tax liabilities for the heirs of middle income Americans.
Portability allows the predeceasing spouse’s unused estate tax exemption to be used at a later time for the estate of the surviving spouse. But for better estate tax planning results, large estates shouldn’t solely rely on portability to reduce their esate taxes.
The IRS is weighing a change that could leave your heirs poorer than you might hope.
In 2017, Congress doubled the exemption starting in 2018, and the amount will continue to rise with inflation through 2025. This expansion helped reduce the number of taxable estates to about 1,300 for returns filed in 2020 from about 5,200 in 2017, according to the latest IRS data.