A fellow attorney (and award-winning journalist) Deborah Jacobs authored the book, “Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide”. In her recent Forbes article titled “Estate Planning for Women (And the Men who Love Them)” she indicated the below question is a question every financially savvy woman should be able to answer.
What’s a tax dowry?
Starting in 2011, the tax-free amounts you can give to no-spousal heirs during life and at death are combined into a single $5 million exclusion. So, for example, if you have used $1 million of the exclusion to make lifetime gifts, the unused exclusion when you die will be $4 million, rather than $5 million.
Married couples get a new, special break: They can share each partner’s $5 million exclusion during life (this process is called gift-splitting) and give more to the kids now, tax-free. But of course this also reduces how much of the tax-free amount will be available when they die, either for their own use or to be carried over by the survivor.
This can pose some tricky issues when at least one member of a couple is wealthier than the other and has been married before. Soon after the new tax law passed, I heard about a situation in which the poorer spouse (a woman) with an unneeded $5 million exclusion agreed to combine the two exclusion amounts for lifetime gifts so that her husband could give more to his kids from a previous marriage, tax-free. Warning: Don’t give up your tax dowry without legal advice, and make sure it comes from your own lawyer-not one your spouse hired.
Questions like this one can often trigger even more questions in your mind. Please accept my invitation to schedule a meeting where we can discuss this topic and others that might be relevant to your estate planning. Give my office a call to set a meeting.