Question: What does the term ‘portability’ refer to in the estate tax context?
Answer: For a married couple, any unused federal estate tax exemption (and gift tax exemption) of the first spouse to die can be left to the surviving spouse. This is the exemption portability ‘privilege’ that existed under prior law and will continue to exist after the increased estate and gift tax exemptions expire at the end of 2025.
The Personal Representative of the first spouse to die’s estate needs to make an election to give to the surviving spouse the unused exemption.
At the end of the day, the combined credits and the ease of obtaining the unused credits will knock more than 99% of Americans out of the federal estate tax (at least through the year 2025). For 2019, the portability privilege effectively doubles the estate and gift tax exemptions to $22.8 million in 2019 (inflation adjusted through 2025).
Comment: Even though the election to ‘port’ the deceased spouse’s credit is not too difficult, it is worth getting advice before the election is made as there are some ‘quirks’ to the portability rules. For example, remarriage of the surviving spouse can change the portability landscape. If the surviving spouse’s new spouse predeceases the surviving spouse, then the unused federal estate tax exemption originally transferred from the first to die is lost. At that point, the surviving spouse may use the new spouse’s unused exemption (but loses the exemption credit of her former deceased spouse).
To plan around this, the surviving spouse could avoid the loss of the first spouse’s unused exemption by making lifetime gifts before the new spouse dies.
As always, if you have any questions or would like to learn more, please contact Steve Shane at email@example.com or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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