What is Portability? Don’t Ignore this Valuable Tool!

Many couples do not have to worry about estate taxes since the federal estate tax exemptions are so large. However, what if you are on the estate tax threshold? Or what if the estate tax exemption sunsets in a couple of years? You may have heard the word “portability” in trust and estate circles.

The portability law was enacted in 2010 to help simplify estate tax planning for couples. In simple terms, portability allows spouses to combine their federal estate tax exemptions so a surviving spouse would have his or her own exemption and the unused exemption from the deceased spouse.

Portability is not automatic. The surviving spouse has to file a federal estate tax return and elect to use the decedent spouse’s exemption within five years from date of death (IRS recently extended this window from two to five years). At the end of the day portability = flexibility. It allows the survivor a “do over” if the estate plan did not appropriately consider the estate tax consequences.