When a cherished family member or friend passes away, it’s common to assume that their estate plan is final and unchangeable. However, this may not always be the case. In reality, there are postmortem tactics that the deceased’s executor (or personal representative), spouse, or beneficiaries can utilize to ensure the estate plan stays on course and aligned with the individual’s intentions.
Estate Plan Tactics
Make A Qualified Terminable Interest Property (QTIP) Trust Election
A QTIP trust can be a great way to use the marital deduction to reduce estate tax at the first spouse’s death and limit the surviving spouse’s access to the trust principal. For the transfer of property to the trust to qualify for the deduction, a QTIP trust election must be made on an estate tax return.
QTIP trust assets ultimately are subject to tax as part of the surviving spouse’s estate. In some cases, including more assets in the estate of the first spouse to die can reduce the overall estate tax. In such a situation, the deceased spouse’s executor may decide not to make the QTIP trust election or to make a partial QTIP trust election.
Use A Qualified Disclaimer
A qualified disclaimer is an irrevocable refusal to accept an interest in property from a will or living trust. Under the right circumstances, a qualified disclaimer can be used to redirect property to other beneficiaries in a tax-efficient manner.
To qualify, a disclaimer must be in writing and delivered to the appropriate representative. The disclaimant has no power to determine who’ll receive the property. Rather, it must pass to the transferor’s spouse or to someone other than the disclaimant, according to the terms of the underlying document making the transfer — such as a will, a living or testamentary trust, or a beneficiary form.
Take Advantage Of Exemption Portability
Portability helps reduce federal gift and estate taxes by allowing a surviving spouse to use a deceased spouse’s unused gift and estate tax exemption amount. For 2023, the exemption is $12.92 million.
Keep in mind that portability isn’t automatically available. It requires the deceased spouse’s executor to make a portability election on a timely filed estate tax return. Unfortunately, many estates fail to make the election because they’re not liable for estate tax and, therefore, aren’t required to file a return. These estates should consider filing an estate tax return for the sole purpose of electing portability. The benefits can be significant.
Keep On Track
Following the death of a loved one, there may be steps that can be taken to keep their estate plan on the right track toward accomplishing their goals. To help ensure your loved one’s plan isn’t derailed, discuss your options with us.