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The Estate Tax Exclusion and How it Affects Your Estate Plan

One of Congress’ enumerated powers under our Constitution is the power to lay and collect taxes (Article I, Section 8).  Congress has used this power to implement what is commonly referred to as an “estate tax.”  What that means is that if you have an estate value that is over a certain limit, than the amount over that certain limit will be subject to high taxation.


In 2001, Congress past a law that raised the estate value amount that could pass without taxation, increasing it in steps from $675,000 in 2001, to $3.5 million in 2009.  Then, in 2010, Congress passed a law that would repeal the estate tax for one year only, with the provision that it would return in 2011 with estates over $1 million being taxed as high as 55%. However, on December 17, 2010, Congress revised the estate tax with yet another new law: the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRA 2010”).  This new law set the estate value amount that could pass without taxation at $5 million, per person, from 2010-2012.  TRA 2010 was designed to be a temporary law and was set to expire on December 31, 2012.  On January 1, 2013, Congress made TRA 2010’s $5 million exemption permanent, with built-in adjustments for inflation. Today (as of 2015) if an estate is worth less than $5.43 million, then that estate will not be subject to a federal estate tax.  For estates that exceed the $5.43 million limit, any excess amount over $5.43 million will be subject to a tax of 40%.  For example, if John Doe has an estate valued at $5.1 million at the time of his death, than John Doe’s executor will not have to pay the IRS estate taxes.  However, if John Doe had an estate valued at $5.6 million at the time of his death, John Doe’s executor would have to write a check to the IRS, from John Doe’s estate, for estate taxes to the tune of $68,000.


With TRA 2010, Congress also introduced a new “portability” provision.  Portability means that one spouse can add their deceased spouse’s estate tax exclusion to their own exclusion, to shelter more from taxes. This portability provision, also known as the “Deceased Spousal Unused Exclusion Amount” can be used to shelter the assets of the surviving spouse and is a very effective tool when used correctly in a comprehensive estate plan.


While planning to minimize or avoid estate taxes is certainly an important reason to meet with an estate planning attorney, creating an estate plan is about much more than protecting your beneficiaries’ inheritance from estate taxes.  Planning for your estate and your legacy can protect your beneficiaries and the assets you leave to them from their creditors, a future divorce, and even their own misjudgment. Estate planning is also about providing protections during lifetime, such as avoiding a guardianship or conservatorship proceeding if you’re incapacitated and protecting your nest egg from the possibility of an extended stay in a nursing home. Contact our office to learn more about how the portability provision could affect your estate plan. We provide the best estate planning Arizona has to offer, call us today.

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After researching estate planning, my husband and I contacted Deason Garner Law Firm and were pleasantly surprised at the relative ease of setting up a Living Trust. All of the personnel we met at the firm, including but not limited to, Adam and Ashley, went above and beyond their assigned duties to make this happen for us. We feel confident in their expertise in this area and feel that we have made two new friends in Yuma! Thank you! K. Knight

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