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Boston widows benefit from portability of tax exclusions

The legislation that kept the U.S economy from falling off a fiscal cliff in 2013 also contains generous tax benefits for Massachusetts widowers and widows. Portable tax exclusions between spouses, a strong tool for asset protection, gained permanency.

Estate planning for the elderly in 2012 included a portability option that was set to disappear this year. Instead, the ability to add a deceased spouse's unused tax exclusion to a surviving spouse's own exclusion was preserved.

Each person is allowed a unified tax credit of $5.25 million in 2013. The tax-free exclusion can be increased when a spouse dies to include whatever portion of the deceased spouse's exclusion was not used.

The tax exclusion transfer is separate from an unlimited marital deduction. A spouse may receive assets from another spouse, before or after death, without federal taxation. Tax exclusions set a limit for tax-free asset giveaways during a lifetime and through an estate.

Portability is not entirely retroactive. The tax exclusion for a spouse who died before 2011 cannot be transferred to a surviving spouse.

The individual figure of $5.25 million includes the exclusion amount for estate and lifetime gift taxes. Used exclusions are subtracted from the unified credit. Any estate assets that exceed the exclusion amount are taxed at up to 40 percent. The upper-end tax rate for 2012 was increased by five percent in 2013.

Married couples have the advantage of being able to "split" tax-free gifts using an exclusion of up to $10.5 million. The Internal Revenue Service depends on taxpayers to keep track of the gifts they give through life.

Under current laws, marital tax-free giving is limited to U.S. citizens and same-gender couples. Executors for a deceased spouse must file a final tax return in a timely manner for a surviving spouse to be eligible for portability.

An estate planning attorney can thoroughly explain the steps needed to take advantage of portability rights.

Source: forbes.com, "A Married Couple's Guide To Estate Planning," Deborah L. Jacobs, Jan. 11, 2013

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