Portability, Estate Tax Transferred

Batson Nolan explains portability in more detail using estate examples.

In 2013, Congress permanently passed into law what is known as the portability election. Portability allows a surviving spouse to use the unused federal estate tax exemption ($5.49 million in 2017) of the deceased spouse. In its most basic form, portability allows a married couple to claim double the estate tax exemptions. This is the first time in the history of the estate tax that we have had such a beneficial law.
 

Tax Exemption – Example 1:

Here is an example of how it works: Susan and George are married and have a combined estate worth $8 million. George dies in 2017 leaving all his assets to Susan. Because George left everything to Susan, his estate suffers no estate tax because the law allows unlimited transfers between spouses free of any kind of estate or gift tax. As such, George did not use any of his $5.49 million lifetime exemption at his death. Susan could then “elect” to use George’s unused $5.49 million exemption for herself. At Susan’s death, she will have her own $5.49 million lifetime exemption plus George’s unused $5.49 million exemption that she can use bringing her total amount of exemption to $10.98 million that can pass estate tax free. Because Susan is able to use George’s exemption, the couple’s entire estate would pass tax free to their children, or whomever their beneficiaries may be.
 

Tax Exemption – Example 2:

As way of a second example, let’s say that at George’s death he gave $4 million dollars to his children and the remainder of his estate to Susan. George’s transfer to his kids would use $4 million of his $5.49 million exemption but the remainder of his estate would qualify for the marital deduction as he gave it to Susan. As such, George would have an unused exemption of $1.49 million dollars ($5.49 million – $4 million = $1.49 million) which Susan could then elect to use her death, bringing her own estate tax exemption to $6.98 million ($1.49 million + $5.49 million = $6.98 million).

We encourage clients who have large estates or may have large estates in the future to go ahead and file the Federal Estate Tax Return (Form 706) at the death of the first spouse so portability can be elected. Even if a client’s estate is under the exemption limit, it is important to preserve that election should future circumstances change.

At Batson Nolan, our experienced estate planning attorneys are well versed in all areas of the law concerning wills, probate, and inheritance laws. We can help when a situation like this occurs to help you understand portability elections. Contact Batson Nolan PLC today!