Portability Elections And Estate Planning For Your Spouse (2024)

FAQs

What are the disadvantages of portability in estate planning? ›

They might assume that the surviving spouse and the estate will take these steps, but that might lead everyone to have all the assets in the surviving spouse's estate but if they haven't properly elected portability, that could trigger estate tax.

Additionally, electing into portability provides more flexibility and simplicity for the surviving spouse, as they may not have to create complex trusts or retitle assets to take advantage of the unused exemption. They can also use the portability election to make transfers during their lifetime.

2022-32 over the summer, married couples who are not otherwise required to file an estate tax return at the death of the first spouse now have substantially more time to make a portability election, permitting the transfer of the deceased spouse's unused federal estate tax exemption to the surviving spouse.

Remarriage does not change the identity of the most recently deceased spouse. If portability has been elected, your clients have a right to the DSUE belonging to their spouse who most recently died. The fact that they have a second (or third) spouse is irrelevant – so long as that spouse is still living.

Within a marriage, each spouse has a unified exclusion amount of $12,920,000. The Tax Cut and Jobs Act of 2017 (TCJA, P.L. 115-97) temporarily doubled the applicable exclusion amount for tax years 2018–2025. Without amendment, the exclusion will revert to half of the inflation-adjusted amount in 2026.

Accordingly, Rev. Proc. 2022-32 extends the portability election period to on or before the fifth anniversary of the decedent's date of death.

In order to elect portability of the decedent's unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate's representative must file an estate tax return (Form 706) and the return must be filed timely.

If one spouse purchases term life insurance coverage, the other spouse is generally the beneficiary unless another is specified. If there is a beneficiary other than the spouse, the spouse cannot override it. However, they are usually entitled to half the death benefit because the law splits community property in half.

Unfortunately, portability isn't automatically available; it requires the deceased spouse's executor to make a portability election on a timely filed estate tax return (Form 706).

What is the purpose of portability? ›

Portability is a way for spouses to combine their estate and gift tax exemptions. More specifically, it's a process where, after the first spouse dies, the surviving spouse can transfer (i.e., “port”) the unused estate tax exemption of the deceased spouse to himself or herself.

Portability was first introduced as part of the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 (“TRA 2010”), and became effective for married persons dying on or after January 1, 2011.

In 2024, the first $13,610,000 of an estate is exempt from taxes, up from $12,920,000 in 2023. Estate taxes are based on the size of the estate. It's a progressive tax, just like our federal income tax. That means that the larger the estate, the higher the tax rate it is subject to.

For example, a husband dies with $2 million in separate assets. He has $3.25 million remaining in his estate tax exemption, which passes to his wife, giving her a total of $7.5 million in estate tax exemption.

Under the simplified portability procedure, an individual now has five years from the date of their spouse's death to file for portability. The simplified procedures do not require a user fee and should be used instead of the IRS's letter ruling process.

Portability is the ability for a surviving spouse to preserve and take advantage of the other spouse's unused exemption by timely filing a federal estate tax return after the first spouse's passing away and making the appropriate election.

Rather than a progressive tax, Connecticut levies a flat 12% tax on amount overs the exemption. The state does not allow for spousal portability. And it is the only state with its own gift tax.