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By Christine Benz | 06-14-2011 04:15 PM

Surviving Spouses: Plan for 'Portability'

Surviving spouses must take certain steps to ensure they can benefit from additional estate tax exemptions afforded by new legislation, says estate planning expert and author Deborah Jacobs.

Christine Benz: Hi, I'm Christine Benz for Morningstar.

Estate planning isn't just for seniors, and it isn't just for the wealthy, according to Deborah Jacobs. Deborah is an estate planning expert, an attorney, and she is also author of Estate Planning Smarts, the second edition of which just came out. She is joining me on the phone today.

Deborah, thanks so much for joining me.

Deborah Jacobs: I am happy to be here.

Benz: So, Deborah, we thought it would make sense to cycle through a couple of key profiles of individuals who might need estate planning help and some considerations they should bear in mind. Let's start with one of the ones that you think is especially important to talk about, particularly in light of some of the new estate tax laws, and that's the person who is a surviving spouse where their spouse has predeceased them. What are some things that that profile of individual should keep in mind?

Jacobs: Well, there is something totally new that results from the new estate tax law, which is that starting this year, a surviving spouse can add any estate tax exemption of the spouse who just died to his or her own, and we now each have a $5 million exemption amount. This is called "portability."

So, for example, a widow can now pass on as much as $10 million untaxed, either through lifetime gifts or through her will, but the key thing to keep in mind is that portability is not automatic. To get it, the executor of the estate of the first spouse to die needs to file an estate tax return, even if no tax is due, and I recommend that everybody see to it that an estate tax return is filed, because maybe they get rich later, and they could use that and you need to do this within nine months of a spouse's dying.

So, it's something that people should really keep in the back of their minds. Very hard to tell a happy, healthy couple now that if one of you dies, this is something you'll need to do down the line, but it's something people should keep in mind ...

Benz: Okay, so you had mentioned that it's kind of a trap, because it's not maybe well-known that you absolutely do need to file that estate tax return to be able to use this portability?

Jacobs: No, it's a brand new thing, and many people don't understand it, and of course, it's something that they're not thinking about at all when things are going well. So, if you lose your spouse, just file in the back of your mind that this is one more thing that you need to do.

Benz: Okay. Any other tips for surviving spouses?

Jacobs: Yes. In the process of going from being a "we" or an "us" to just being "me," you must become much more self-sufficient in terms of taking care of yourself. So, for example, everybody ought to have a durable power of attorney, appointing a family member, a trusted friend, or an advisor to handle their finances, if they become sick or disabled in some way. For many people, it was the spouse who played that role. So, if you lose your spouse, you need to revisit this document.

Benz: And also health-care power of attorney …

Jacobs: Absolutely yes.

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