The
first issue regarding portability is what does portability do? The answer is
that portability allows the first spouse to die to transfer his/her unused
estate tax applicable exclusion amount to the surviving spouse, who can then
use it for his/her gift or estate tax purposes.
The American Tax Relief Act of
2012 (ATRA) brought a lot to the table in regards to estate planning. One
planning topic of interest brought on by ATRA is the permanence of
“portability.”
While the concept of
“portability” is not entirely new, it is a fairly important tax concept for all
married couples.
In fact, a recent Forbes article titled “Estate Tax Portability – New Paradigm For
Estate Planning” is a primer of sorts for couples still unfamiliar with
the concept now become law. Practically speaking, with the advent of
“portability,” most married persons do not need to worry about maximizing the
estate/gift tax exemption of each spouse. Formerly, couples had to craft
special trusts and other devices to ensure the opportunity to shelter their
combined estate/gift tax exemption amount.
Under ATRA the estate/gift tax
exemption amount for each spouse is “portable” between spouses. Consequently,
not only can the surviving spouse inherit all of the couple’s assets, but can
inherit the exemption amount attributed to the deceased spouse. This
“portability” benefit is not automatic and what appears simple can become
complex.
The surviving spouse is required
to file the correct tax forms (i.e. IRS Form 706) to claim the unused
estate/gift tax exemption of the deceased spouse. Fail to do the paperwork and
you fail to get the benefit of portability.
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Reference: Forbes (July
20, 2013) “Estate Tax Portability – New Paradigm For
Estate Planning”