The New Estate Tax Opens the Door for Tax Credit Dating Website for Widows and Sugar Daddies

 While I am sure most people will continue to marry for other reasons, and tax credit dating sites are probably not in our immediate future, estate planning and family law attorney should be aware of a new provision in the latest estate tax law. In particular, the portability of the unified estate tax credit from one spouse to the other.

After 10 years of anticipation, and with a full 14 days to spare, Congress passed the Tax Relief Act of 2010, providing some clarity regarding the future of the estate tax. The legislation extends the estate tax through 2012, reduces the top tax rate to 35% and increases the amount excluded from the estate tax to $5,000,000.00 per decedent. If further legislation does not make this law permanent, the pre 2000 tax laws will spring back and the top tax rate will be 60% with an exclusion amount of only $1,000,000.00. It is widely believed that the 2010 act will provide the framework for the estate tax going forward.

An interesting addition to the act is the portability of the tax exemption. Under prior estate tax laws the surviving spouse would gain no benefit from the deceased spouse's credit amount unless it was preserved through appropriate planning. Usually this required a credit shelter trust to be formed to preserve the benefit of the estate tax credit. Under the new legislation, the credit is portable as long as an estate tax return was filed (IRS form 706) showing how much of the credit was used by the decedent.

A surviving spouse could receive all of the assets from the decedent (using the marital deduction and none of the unified credit) file the estate tax return, and increase their estate tax credit to $10,000,000.00.

This tax change, if made permanent, should incentivize people to leave more assets to their spouse free of trust as many of the credit shelter trusts prepared are purely for tax purposes. While it is extremely unlikely, it could also cause marriage to a widow (that has filed the appropriate paperwork) to be a tax planning tool.

Therefore, all surviving spouses should file an estate tax return on their deceased spouse to preserve their tax credit. Then the surviving spouse may have a multi-million dollar tax advantage when they strike it rich, win the lottery or marry a sugar daddy.