As the baby boomer generation enters old age, estate planning has become an important issue for many families. Senior accountant Wang Guangzhong stated that due to factors such as rising real estate prices and a booming stock market, many people’s assets have “unintentionally” exceeded the estate tax exemption amount, requiring them to file an estate tax return (Form 706) with the Internal Revenue Service (IRS).
In recent years, there has been a noticeable increase in demand for estate tax consulting, with many families quietly finding themselves among the “wealthy” due to soaring real estate prices, stock market appreciation, and the valuation of assets from the previous generation based on market value. While most people believe that their assets are still far from reaching the exemption threshold, the reality may be different.
According to federal estate tax regulations, the exemption amount for 2023 was $12.92 million, increasing to $13.61 million in 2024. If an individual’s assets exceed the annual exemption amount, they must file an “estate tax return” with the IRS. Wang Guangzhong reminded that the estate tax return must be completed within 9 months after the decedent’s death, with the option to request an extension of up to 6 months with Form 4768 if necessary.
He explained that there are misconceptions regarding the “exemption amount,” such as the belief that the exemption amounts of both spouses can be directly combined. In reality, estate taxes are calculated on an individual basis. If one spouse passes away, the surviving spouse will need to file Form 706 to transfer the deceased spouse’s unused exemption amount (DSUE) to avoid losing this additional benefit.
For example, a married couple with total assets of $15 million, with each holding $7.5 million. If the husband passes away and his assets do not exceed the annual exemption amount of $13.61 million, no estate tax is due, but it is necessary to file an estate tax return to transfer the unused exemption amount ($6.11 million) to the wife.
If the wife passes away in 2024, her available exemption amount will be $19.72 million ($13.61 million + $6.11 million). If the wife’s total assets exceed the exemption amount, estate tax will still be required, which is why accountants recommend that taxpayers seek professional advice early to ensure the full utilization of the exemption amount.
Wang Guangzhong also emphasized that estate taxes are based on the market value of the deceased’s assets on the day of death, which not only affects the calculation of the tax amount but also determines the tax basis for future heirs. He believes that this “Step-Up Basis” policy is advantageous for heirs. For example, if the market value of real estate is $2 million, the cost basis for the heirs when selling will be $2 million, only requiring capital gains tax for the excess, reducing the tax burden.
Wang Guangzhong further advised the public to regularly review the market value of family assets, especially in the context of rising real estate and stock market prices, and maintain close contact with accountants or tax advisors. Properly planning the exemption amount, transferring unused exemption amounts of spouses, not only reduces the tax burden but also provides more flexibility and protection for family wealth management. When heirs receive an inheritance, the cost basis of their assets will be recalculated, which has a significant impact on future asset disposal, and clear estate planning can prevent disputes among family members.