Using Portability to Get the Most Out of your Estate Tax Exemptions

One of the most common estate planning goals for high net worth married couples is to reduce their estate’s tax liability by taking full advantage of state and federal estate tax exemptions. The 2012 Tax Relief, Unemployment Reauthorization, and Job Creation Act (TRA) gave couples much more leeway to plan for their state through the portability of a deceased spouse’s unused estate tax exemption.


In 2017, the estate and gift tax exemption will be $5.49 million dollars for an individual, and just under $11 million for married couples, thanks to the 2012 Act. While there are a number of ways to properly implement the portability of estate and gift tax exemptions, one of the more common ways is to create a family trust where the assets of the first spouse to pass away will be placed in under the individual’s own gift and estate exemptions.


Without portability, couples can end up leaving millions of dollars in assets subject to taxation because of improper planning. Two of the most common reasons couples fail to properly use take advantage of gift and estate tax exemptions are unbalanced asset ownership or an inefficient estate plan.


Unbalanced asset ownership happens when the assets of one spouse is less than the individual’s lifetime gift and estate tax exclusion amount. Without portability, if one spouse had $3 million in assets, he or she would effectively be leaving almost $2.5 million in exclusions on the table at the time of death. One way to offset this without portability is for the spouse with more assets to transfer enough over to another spouse to bring the individual’s gift and estate exemptions up to $5.49 million.


Inefficient estate plans occur when spouses fail to properly set up trusts, despite proper balancing of assets. An example would be simply passing assets from one spouse to another at the time of death, rather than create a family trust to put up to $5.49 million in assets. The solution to this is to set up a proper family trust wit the help of an estate planning attorney.


Even though portability can eliminate these two situations, couples need to perform proper planning and create the necessary documentation to take full advantage. To utilize the Deceased Spousal Unused Exclusion Amount (DSUE), that is the remaining gift and estate tax exemptions, the surviving spouse will need to elect to use the remainder of the DSUE on an estate tax return.

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