As we have discussed several times in this space, the exemption amount for estate and gift taxes increased this year. Individuals may now gift or bequeath $5 million before federal taxes kick in, for couples the amount is $10 million. This increased exemption level will continue at least through the end of 2012 when it is scheduled to expire, but may very well be adjusted to continue into the future. One new twist that goes along with these raised amounts is that a surviving spouse can hang on to the unused exemption amount of a deceased spouse.

This means that if one spouse passes away in 2011 or 2012, unused portion of the estate tax exemption can later be used by the surviving spouse if to convey a larger amount of assets tax free. While one spouse has always been able to pass assets either as a gift or through an estate tax-free to a surviving spouse, traditionally a trust was often used to take advantage of the late spouses tax exemption so that the estate of the surviving spouse would not be subjected to taxes on the amount that they had received from the predeceasing spouse.

Now because the exemption of the predeceasing spouse can be used by the surviving spouse automatically, many families may no longer need to use a special trust. But widowers and widows must take care in their estate planning and administration to ensure that they can take advantage of the pre-deceasing spouse's exemption.

In order to take advantage of this new portability provision, the unused portion of the exemption must be transferred to the surviving spouse. This means that an estate tax return must be filed even when there is no estate tax due.

Obviously planning a strategy to protect your family's assets from unnecessary tax liability can be a complicated process. It is good idea to talk to an experienced professional to ensure that your family receives the most possible benefit from a lifetime of hard work and savings.

Source: Forbes "Estate Planning For Two" Deborah Jacobs, April 1, 2011