A Question of Law: When should you file a Federal Estate Tax return?
This time of year, most people are filling their time with holiday shopping and meeting with family and friends. Unfortunately, next year's tax time is looming in the dreadfully near future. About the time holiday lights are taken down, the tax paperwork comes out.
Since a Federal Estate tax return doesn't follow the regular calendar, as it is only filed after the death of the estate owner, this part of filing taxes is not always on the minds of those preparing the paperwork. Even in the event of a death, most people don't need to worry about filing a Federal Estate tax return, because the individual exemption for Federal Estate taxes is a cool $5.4 million. As a result, very few estates will file a Federal Estate tax return which is the right move to make....almost always.
"However, there is one catch to not filing; a surviving spouse cannot take the $5.4 million exclusion that the deceased spouse possessed unless a return is filed. As a result, any unexpected surges in wealth for the surviving spouse will only have one exception apply rather than the two and potentially cost millions." Yes, potentially MILLIONS.
Simply, instead of inheriting your spouse's exemption, you only have your own. For most people, again, one exemption is enough. But if you do somehow gain wealth after the fact, you can't go back and claim the exemption if you never filed the necessary return.
With this in mind, it is imperative that you discuss this with your attorney handling your estate plan to make sure you are getting the tax benefits you may need.
Carlson & Burnett attorney, Michelle Miller-McCoy addresses issues of estate planning and probate in Nebraska. Ms. Miller-McCoy has led and organized educational seminars for other lawyers in an effort to increase professional awareness and understanding of these issues.