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Estate Tax Portability and How It Affects You

You may be wondering what estate tax portability is and what it can do for you. This means that you take an unused portion of the first-to-die spouse's estate tax exemption and passing this onto the spouse that is still alive. The United States government has placed the estate tax exemption at $5.45 million. However, with your spouse, this means that you have a total estate tax exemption of $10.9 million. This is as of 2016. To get the most up-to-date information, you should speak with an estate planning attorney.


Let's say that you have a husband who died, and he had $2 million in separate assets. This means that $3.45 million remains for the estate tax exemption. After the husband has passed away, the estate tax exemption will be passed onto the wife for $8.9 million in the exemption. It's important to note that you must plan this carefully. If portability didn't exist, the remaining exemption from the husband may have been forfeited. Speaking with an attorney who understands this field of law can give you the best chances through special tax planning techniques. When you have a larger estate, you want to plan carefully so that those left behind don't have a difficult time. Dealing with the loss of a loved one can be hard enough.

History of This Law

President Barrack Hussein Obama first signed this bill into effect December 2010. That bill became known as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Introducing the bill, it became the first time that the concept of portability came into play. At the time, people were still feeling the pains from the Great Recession, and they were in great need of relief. This bill helped them to get the relief that they needed. At first, they signed it as only a temporary bill for tax relief, but eventually, through the provisions of ATRA, they made this bill permanent in 2013. It has remained a permanent part of federal estate tax ever since.

Not Everyone Is Impacted

How many people do you know of that have over $11.4 million in assets? You may know of one or two people, but the people who will have to worry about the federal estate tax are few and far between. Anyone who has a significant level of assets is advised to have an estate planning lawyer because this can lower much of the trouble that could arise otherwise. Let's take the example of the celebrity Prince. He did no estate planning, and as a result, his home and many of his assets have been in lockdown because of the lack of planning.

How Can Someone Claim Portability?

You have to exercise caution when you go to claim portability because many couples and estate executors have found themselves in trouble for this part. Before you begin, you should first understand that the estate tax portability law does work automatically. You have to first file for an estate tax return. You should do this soon after the loss of the loved one. Normally, you want to do this within a nine-month period. That's the deadline for filing.

Let's say that you didn't file within the nine-month deadline. If you failed to file within nine months, you will be excluded from this benefit, and you could lose half of your benefits. This means that you would have to pay hundreds of thousands of dollars in extra estate taxes that you would not have had to file for otherwise. In some cases, you could also file for an extension, but it would be best if you spoke with your lawyer on this matter. He can give you the most detailed information on the current laws, and he can ensure that you take full advantage of them.

Using Other Techniques

Having a good estate planning lawyer is essential because he can help to ensure that you don't make a financial misstep in this field. Instead of using portability, you have another option. For example, you could use what has become known as a special trust. They have also given this other names like, "bypass trust" and "credit shelter trust." This ensures that you don't accidentally forfeit individual exemptions. Typically with this technique, however, both spouses will still be alive at the time of using it.

Results: With Portability vs Without Portability

Let's have a look at what happens with portability. Maria and Stewart have been married for 52 years. They have all their assets jointly titled. In total, they have a net worth of $8,000,000. Stewart passes away first from a heart attack. The federal estate tax exemption has been set at $5,340,000. That's not enough to cover the total $8,000,000 net worth. However, Maria comes in and pulls from her portability as well. This gives them a total of $10,680,000 in exemptions. Because they had a combined net worth of $8,000,000, they have $0 in taxable estate tax.

Now, let's have a look at what happens when you don't use portability or you fail to claim it correctly. Stewart and Maria are married, and Stewart passes away again. This time, Maria fails to file for portability on time. She's covered for $5,340,000, but it doesn't cover the entire $8,000,000. The estate tax rate sits at 40 percent. The estate is worth $8,000,000. Because portability doesn't cover everything, the estate of Sue will owe $1,064,000 at the time of her death. Why pay that extra if you didn't have to?

Taking advantage of estate tax portability can save you a lot of money. In addition, having the right estate planning attorney can ensure that everything runs smoothly. Before they had this law in effect, the only option to keep people from having to pay such a high amount came from using the AB Trust System. Because of the law with portability, you no longer have to worry about this.

Author Info

Blake Harris is the Managing Attorney at Mile High Estate Planning where he assists clients with Wills and Trusts, Asset Protection, and Probate. Blake has extensive knowledge and experience helping families plan for and manage the transfer of their assets.

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