If you have been following the news surrounding the new tax law, you may have heard the term “estate tax portability”. In short, estate tax portability refers to the ability of a surviving spouse to use the deceased spouse’s remaining estate and gift tax exemption.
The federal tax laws permit married spouses twice the individual estate and gift tax exemptions. Individuals may have a combined $11.18 million in lifetime gifts and total estate value as of 2018 without paying estate taxes. For example, an individual could give $2 million to relatives and friends during his lifetime and have an estate value of $3 million at death. The total $5 million would fall within the exemption and so his estate would not pay estate tax.
For married couples who set up a trust in a certain manner, the exemptions double to account for two people’s gifts and estates. Gift and estate tax exemptions are $22.36 million as of 2018. Portability allows the surviving spouse to use the deceased spouse’s exemption even if they did not plan ahead and set up their trust to use the exemption. Portability means that a surviving spouse may use the deceased spouse’s remaining gift and estate tax exemption as long as the surviving spouse or executor makes an election on the deceased spouse’s estate tax return.
Portability provides some tax advantages for some married couples, depending on their lifetime giving plans and their long term estate plans. For other couples, using trusts and other estate planning devices helps reduce tax liability, especially if the spouse who dies first leaves a large estate. These couples include those in blended families or who have other designated heirs beside the spouse, couples with lots of debt and creditors, people doing multi-generation estate planning using the generation skipping transfer tax, and more.
Whether you can or should take advantage of state tax portability will depend on your and your spouse’s circumstances, as well as your long-term plans. If you are not sure how your existing estate plan addresses portability or you would like to make an estate plan that does, contact an estate planning attorney today.
Confused by estate tax portability and need knowledgeable guidance? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call Angela’s office at (424) 400-2125.