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Portability in Estate Planning

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Brooke J. Shemer, Attorney  Portability was introduced under the American Taxpayer Relief Act of 2012 and is effective for married persons dying on or after January 1, 2011. It has the potential to save you greatly in estate taxes, but you must act quickly if you intend to make a portability election.

Here is some background:

Currently, the federal estate and gift tax exclusions are unified at 5.34 Million Dollars, an amount that is adjusted annually for inflation. This means that assuming you have not made any lifetime taxable gifts, no federal estate tax is owed at death if your estate is worth less than 5.34 Million Dollars.  For purposes of this explanation and the illustrations that follow, Five Million Dollars will be used as the exclusion amount.

Now here is where portability comes into play:

If your spouse passed away and no estate tax was owed because the estate was less than Five Million Dollars, you may want to consider electing portability in order to save estate taxes at your death.

Consider this example:

John and Beth are married.  John’s estate is valued at Three Million Dollars at his death.  Since the estate tax exemption is Five Million Dollars but only Three Million Dollars of the exemption is used, Two Million Dollars of John’s exclusion is unused.  This Two Million Dollars is referred to as the deceased spouse’s unused exclusion amount.  If Beth elects portability, she can tack on John’s unused Two Million Dollars to her own exemption amount of Five Million Dollars. So, Beth could die with an estate valued at Seven Million Dollars without being subject to estate tax at the federal level.

The effect of the election is that at your death, your deceased spouse’s unused exclusion is tacked onto your own Five Million Dollar exclusion, so more of your estate can pass estate-tax free to your beneficiaries.

​Alternatively, the deceased spouse’s unused exclusion amount can be ported to the surviving spouse for gift tax purposes so that the wealth can be transferred during the surviving spouse’s lifetime.

Returning to the above example, if John dies with a Three Million Dollar estate, Two Million Dollars of the exclusion is unused.  By electing portability upon John’s death, Beth can then make gifts of Seven Million Dollars during her lifetime—Two Million Dollars of John’s ported amount plus her own Five Million Dollar gift tax exclusion amount.   ​

If your estate is worth Five Million Dollars, or has the potential to approach this amount, you may consider electing portability at your spouse’s death.  The election is made by filing an estate tax return within nine months of your spouse’s date of death.

​Portability will be allowed in Maryland beginning in 2019, when the Maryland and federal estate taxes are recoupled.​

If your spouse recently passed away, an estate planning attorney can assist you in appraising and inventorying the assets to determine the size of the estate and assess whether electing portability is an appropriate election for you.

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