Answer to What Is The Portability Election for Estate Tax Purposes?

What is Portability Election?

A remnant of the Bush tax cuts preserved in 2010 left intact a useful tool for those wishing to avoid additional estate taxes: portability election.

Portability Election is a provision that allows the unused federal estate tax exemptions unclaimed by one spouse to pass on to another instead of expiring upon their death. This provision was enacted as part of The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and then renewed in 2013 as part of the American Taxpayer Relief Act.

For example, if a married man died, his $1.5 million estate passes to his spouse untouched by the estate tax. However, $3.5 million of his estate tax exemption went unused. That means that his spouse’s estate now has a leeway of $8.5 million before the federal estate tax would apply.

The portability election feature is not automatic, however. You must file form 706 to qualify. This could be more trouble than it’s worth for smaller estates, since filing an estate tax return is costly and complicated. You have just nine months to do this after the passing one a spouse.

You also want to keep in mind that the portability feature does not extend to future generations or beyond that first couple. The federal generation-skipping transfer tax (GST exemption) is not portable.

Portability is a great tool for estate planning, but keep in mind that it does not address state taxes, can’t be used for multi-generational planning, and it doesn’t address non-tax considerations, such as blended families, asset protection, or avoiding probate.

Over the past 33 years, the Law Offices of Christopher A. Benson has helped more than 800 clients prepare and utilize simple and effective planning techniques to protect them and their families in order to avoid probate, save estate taxes, save money and save added emotional burden that comes from long term illness and/or death of a family member. Give us a call to schedule a free consultation to find out how we can help you and your family.