"We have worked with a number of mutual clients who are trying to sort out Medicaid Planning and Asset Protection. I have found that many adult children and their parents do not fully understand the complexities of these issues."
- Kate Caldwell, MAG, CMC, Founder, ElderTree, LLC

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How to Avoid Estate Tax

Federal tax law allows an unlimited transfer of property to a surviving spouse without imposing any estate tax. This is a result of the "unlimited marital deduction." In addition to the unlimited marital deduction, Federal tax law allows every individual to transfer a specific amount tax-free at death to a beneficiary or beneficiaries other than a spouse. This amount, called the "exemption equivalent amount," is now set permanently at $5 million and is indexed for inflation -- ths to $5,250,000 in 2013.

If you are married and you leave everything to your spouse upon your death, your estate will not have to pay any estate taxes due to the effect of the unlimited marital deduction. The federal gift and generation-skipping transfer tax exemption is the same as the estate-tax exclusion amount, she says. The top federal estate-tax rate on the largest estates is now 40%, in 2013, up from 35% in 2012.

As of 2013, portability became permanent.  Portability effectively makes the federal estate-tax exclusion amount "portable" between a husband and wife. When one spouse dies, the other typically can get the deceased spouse's unused exemption amount without having to set up "bypass" trusts or other tax-saving maneuvers.  However, bypass of other types of family trusts are still important for some families, especially blended families where protecting assets for the children of a prior marriage is often of paramount importance.