Post-mortem tax planning refers to the arrangements an individual makes prior to death to minimize the overall tax liability of their estate, and the steps followed by the executor later to ensure the decedent’s goal is achieved. Even with diligent efforts to keep up with changes in tax laws, sometimes it is simply not possible to plan for every eventuality. Fortunately, there are some post mortem tax strategies that offer a surviving spouse some flexibility when handling the estate of their loved one. We review some of those strategies below.
Spousal Right of Election
In Texas, when someone dies with a valid will, their surviving spouse has the right to choose to 1) take the bequests designated in the will or 2) retain ownership in community property. This option can prove to be helpful when it will produce a more favorable tax outcome.
A qualified terminable interest property (QTIP) trust enables the grantor to provide for the surviving spouse, and is commonly used when married couples have children from previous marriages. With this type of trust, income generated from the assets in the QTIP trust go to the surviving spouse. Upon the surviving spouse’s death, the assets in the trust are included in his/her estate for tax purposes. These assets then pass to the beneficiaries designated by the original grantor.
A QTIP trust gives the executor of your estate the option to claim the marital deduction on the grantor’s federal estate tax return. The executor may make the election, not make the election, or make a partial election, depending on which strategy will produce the most favorable results from a tax standpoint.
Post mortem tax planning can be quite complex, so consultation with a legal professional will help ensure assets and their respective tax implications are taken into consideration. If you have questions about post mortem tax planning, contact the estate planning attorneys at Bennett Weston LaJone & Turner, P.C.