Estate planning is a proactive and prudent approach to safeguarding your wealth, minimizing tax liabilities, and ensuring a seamless transfer of assets to your chosen beneficiaries. Portability is a powerful tool within this complex landscape, offering newfound flexibility and opportunities for optimizing your estate plan.

But what exactly is portability in estate planning? That is why, in this article, we will tackle this question.

What is Portability?

A surviving spouse may use any gift tax exemption and unused estate upon the deceased spouse’s death under a federal estate tax law called portability. Portability might shield the surviving spouse from paying hefty gifts or estate taxes when a spouse dies. 

Understanding the Mechanics of Portability

Understanding the estate tax exemption is crucial for understanding portability in estate planning. Amounts up to $11.7 million per person are allowed to pass tax-free to heirs under IRS rules as of 2023. 

If one spouse dies before using all of their exemption, the remaining amount may be “ported” to the surviving spouse.

However, it only sometimes happens that way. Even if no tax is owed, the decedent’s spousal executor must choose portability on a timely filed estate tax return to use it. Even if no tax is owed, IRS Form 706 demands a thorough disclosure of all assets and liabilities.

The Benefits of Portability

So why is portability important in estate planning? The main advantage is the possibility of lessening the estate tax burden drastically. 

For instance, portability enables the surviving spouse to enjoy the remaining estate tax exemption if a spouse dies and their estate does not fully utilize it. That effectively doubles the surviving spouse’s estate tax exemption, which might reach the maximum allowed for an individual exemption.

Planning for asset protection may benefit from the flexibility provided by portability. Surviving spouses can still access the entire estate and keep the unused estate tax exemption because it doesn’t necessitate using trust forms like the bypass trust.

Various Limitations of Portability

Even though portability seems wonderful, it has certain drawbacks. It does not apply to generation-skipping transfer taxes; only estate taxes are included. It means that transfers to grandchildren cannot be tax-sheltered using the DSUE.

The DSUE is, moreover, not inflation-indexed. Therefore, inflation may gradually reduce the gain.

Last, only the DSUE amount of the most current deceased spouse can be used when mobility is allowed between spouses. It might be a drawback in situations involving several marriages.

Who Can Use Portability?

Although many people don’t have to worry about choosing portability since their estate is worth less than the exemption, currently $12,920,000 for 2023, the existing law expires on 12/31/2025, and the exemption will be reduced to roughly $6 Million. 

Portability may enable surviving spouses in married couples with estates worth more than $6 million when the first spouse didn’t use the entire exemption to leave more assets without an estate tax.

There are some exceptions to the procedure:

• You wouldn’t be able to benefit from it if the executor of the estate didn’t file an estate tax return and/or didn’t choose to allow the spouse to use portability.
• You may only utilize the unused exemption of your previous spouse. You could not opt for portability on the estates of your first two marriages and obtain unused exemptions from all three husbands if you married thrice.
• Within nine months of the death, an election should be made.

Managing Portability with Professional Assistance

Because portability in estate planning is so complicated, it is best to get professional assistance. Lawyers, financial consultants, and CPAs can provide advice to achieve the best judgments adapted to specific situations.

What Is Portability In Estate Planning?

Portability in estate planning refers to a tax provision allowing a surviving spouse to use any unused portion of their deceased spouse’s estate tax exemption. Portability was introduced in the United States as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Before the introduction of portability, each individual had an estate tax exemption. In other words, if the first spouse passed away and did not rely on their exemption, the unused portion was essentially wasted. However, with portability, the unused portion can be transferred to the surviving spouse, effectively increasing their estate tax exemption.

It’s important to note that portability only applies to federal estate taxes in the United States. State estate taxes may have different rules and regulations, so it’s advisable to consult with a qualified estate planning attorney or tax professional to understand the specific laws in your jurisdiction.

Overall, portability in estate planning provides a valuable tax-saving opportunity for married couples, allowing them to maximize the estate tax benefits available and pass a more significant portion of their wealth to future generations.

What are the requirements for portability in estate planning?

To take advantage of portability, you must meet certain requirements. Here are the key considerations:

1. Marital Status: Portability applies only to married couples. Both spouses must be legally married at the time of the first spouse’s death.
2. Filing a Federal Estate Tax Return: To elect portability, the deceased spouse’s estate must file a federal estate tax return (Form 706) within the specified time frame, even if no estate tax is due. This deadline is nine months after death, but extensions may be available.
3. Calculation of the Deceased Spouse’s Unused Exemption: The estate tax return filed by the deceased spouse’s estate is used to calculate the unused portion of the federal estate tax exemption. It is called the “DSUE” or deceased spousal unused exclusion amount.
4. Portability Election: The estate tax return must include a specific portability election to be made. The election is on Schedule PC (Portability Computation) of Form 706.
5. Surviving Spouse’s Use of the DSUE Amount: The surviving spouse may raise their federal estate tax exemption by using the DSUE amount they got from the estate tax return of the deceased spouse. It can be done by filing a federal estate tax return (Form 706) upon the surviving spouse’s death.

It is essential to consult with an experienced Las Vegas estate planning attorney or tax professional who can provide personalized guidance and ensure all requirements are met when considering portability in estate planning. 

Laws and regulations regarding portability may change, so staying informed and seeking professional advice is crucial.

How to Elect Portability?

The executor must draft an estate tax return and file it within nine (9) months after the decedent’s passing if the estate files a tax return and chooses the portability option within the tax return. 

Property, along with other assets, may need to be valued for this reason. To decide if filing an estate tax return for your spouse is worthwhile, the executor must determine the estate’s value when you pass away.

Federal Estate Tax Exemption

Each person is entitled to a lifetime exemption from estate and gift taxes under federal law ($12.06 million per person in 2022). No taxes will be due on the estate during the time of death as long as the taxable donations they have made during their lifetime and upon death are less than this exemption amount. Assets valued over $12.06 million are subject to a 40% tax.

While a married couple’s exemption now exceeds $24 million, it will expire for deaths after December 31, 2025. After that date, the per-person exemption becomes $5.0 million, with inflation adjustments. Since Las Vegas does not permit portability, additional estate tax preparation is still required.

Consider a couple with $14 million in assets held jointly or with the spouse as beneficiary. Because couples can transfer an infinite amount of assets to one another without paying taxes, the assets pass to the surviving spouse if the first spouse passes away in 2022. However, all assets will be subject to estate taxes when the survivor dies. Due to the estate’s size being more than the survivor’s exemption, estate taxes will become due. Based on the reduced exemption level, the tax hit will be much higher if the second spouse passes away after January 1, 2026.

How Portability Works with Gift Tax

Interestingly, portability applies to both gift taxes and estate taxes. Any unused estate tax exemption can cover the surviving spouse’s lifetime donations over the annual gift exclusion amount.

The remaining exemption could be added to the surviving spouse’s exemption if a spouse dies without using up their entire estate tax exemption. As a result, the surviving spouse can provide more gifts exempt from taxes during their lifetime.

For instance, the surviving spouse can increase their exemption by $6.7 million if they only used $5 million of the deceased spouse’s $11.7 million exemption.

After that, the surviving spouse would be eligible to make tax-free gifts of up to $18.4 million during their lifetime (their own $11.7 million exemption and the $6.7 million given by their deceased husband).

After the first spouse passes away, portability for gift tax must be chosen on a timely filed estate tax return, just like for estate tax.

How to Maximize Portability Benefits

When it comes to estate planning, maximizing portability benefits can be valuable.

To maximize portability benefits in estate planning, consider the following steps:

1. Understand the estate tax exemption: The first step is to familiarize yourself with the estate tax exemption. This exemption determines the assets an individual can transfer upon death without incurring estate taxes. The federal estate tax exemption was $11.7 million per individual. However, updating the exemption limits is essential as they may change over time.
2. Establish proper ownership and titling: Proper ownership and titling of assets can significantly impact portability benefits. Ensure that assets are titled in a way that fully utilizes both spouses’ estate tax exemptions. For example, consider owning assets jointly with rights of survivorship or utilizing trusts to hold assets.
3. Utilize portability through timely filing: To take advantage of portability benefits, the estate of the first spouse to pass away must file a timely estate tax return, even if no estate tax is owed. This filing is necessary to preserve the unused estate tax exemption that can be transferred to the surviving spouse.
4. Engage in regular estate planning reviews: Estate planning is not a one-time event but requires regular reviews and updates. As tax laws and regulations change over time, it’s essential to consult with an experienced estate planning attorney or tax professional who can help ensure that your estate plan maximizes portability benefits.
5. Coordinate with other estate planning strategies: Maximizing portability benefits can be complemented by other estate planning strategies, such as gifting, charitable giving, and using irrevocable trusts. By coordinating these strategies effectively, you can further optimize your estate plan and potentially reduce the tax burden.

Remember, estate planning is complex, and the laws surrounding portability and estate taxes can be intricate. Working with qualified professionals specializing in estate planning is crucial to navigating the process successfully and maximizing the benefits available to you and your loved ones.

Get Help from an Experienced Attorney

Estate planning can be complicated, so getting expert advice from us at The Law Office of Roger A. Giuliani, P.C. can help you make the best choices possible for your circumstances.

You can get assistance through the complexities of estate tax rules and advice on the best methods for enhancing the portability of estate tax exemption from an expert estate planning lawyer in Las Vegas.

If you have any questions and want to know more, call us at (702) 388-9800.

For more information on how https://probateattorneyvegas.com/ can help you on your Estate Planning, please contact us at (702) 388-9800, or visit us here:

The Law Office of Roger A. Giuliani, P.C.

500 N Rainbow Blvd #300, Las Vegas, NV 89107, United States

(702) 388-9800

Estate Planning Attorney Las Vegas

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