As married couples plan for their estate there is a concern that what they have will be taxed by the IRS leaving little for their surviving spouse and beneficiaries.  In many cases, the estate will not be large enough to be taxed.  However, for those estates whose value exceeds a certain amount, the Portability Election can serve as a valuable tax-planning tool.  Here is what you need to know about the Portability Election and how it can apply to your circumstances:

Estate Taxes

The first question to ask is—Will estate tax apply to my estate?  In most cases, the answer will be no.  The reason is that the federal government has an exemption—the federal estate tax exemption-which, when applied, allows most estates to avoid taxation.  The federal estate tax exemption is calculated by looking at the gross value of your estate for the year of death, determining your estate tax rate, and applying the estate tax exemption.  The amount over the exemption will be taxed.  The estate tax exemption has increased over the years while the tax rates have decreased.  In 2017, the estate tax exemption amount was $5.49 million dollars. What this means is that if you were to die this year and your estate’s gross value did not exceed $5.49 million dollars, it would not be subject to the estate tax.  If the value of your estate was over $5.49 million, that is the amount that would be taxed.

The Portability Exemption

The second question is—If the estate tax applies to you, how does the Portability Exemption work? When a couple is married the portability exemption allows them to transport their respective federal estate tax exemptions between them.  So, if one spouse dies the other spouse can use any unused portion of the deceased spouses’ estate tax exemption.  The surviving spouse must file a tax form to effect the transfer even if there are not any taxes due.   Once the surviving spouse dies, that spouse’s estate can use their estate tax exemption in addition to the exemption amount which was ported over from the pre-deceasing spouse.  This has the effect of creating a more substantial exemption which minimizes the amount of any tax burden on the estate and increases the amount that beneficiaries will inherit.

Depending on your circumstances, the portability exemption may be an election to consider in your estate planning.  Being aware of the available exceptions and exemptions during your estate planning is an important part of preparing for the future.  We have experience and knowledge that can help you make the right choices for you.  Please contact us online or by phone if we may be of assistance.

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