Orange County Estate Tax Lawyer Answers: “What’s Estate Tax Portability?”

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 introduced the concept of estate tax portability between spouses. The American Taxpayer Relief Act of 2013 made estate tax portability permanent. What exactly is estate tax portability, and how can you use it to your advantage?

 What is Estate Tax Portability?

If a husband dies and the federal estate tax on his estate doesn’t go over his exemption, his wife can add the leftover from his exemption to hers. So, say the husband dies in 2017, when the estate tax exemption is $5,490,000. Through his lifetime, he’s only used up $2,490,000. There’s a remainder of $3,000,000. His wife can add that to hers. She hasn’t used any of her estate tax exemption, so now, she has an estate tax exemption of $3,000,000 over any years’ exemption.

Estate tax portability only applies to spouses currently legally married. The remainder is dependent on the exemption the year that the first spouse dies, regardless of the exemption the year the second spouse dies.

Portability doesn’t apply to assets held jointly between spouses because jointly owned property automatically passes to the survivor(s) in the event that one owner dies. For example, a husband and wife jointly own a farm. When the wife dies, the husband gets the farm in its entirety without paying any taxes on it because the husband isn’t inheriting the farm but possessing what he already owns.

How can estate tax portability help my family?

Estate tax portability allows you and your spouse to make estate gifts from your estate while making the most of tax exemptions. Whereas spouses once individually had their own estate tax exemptions, now, they can benefit from each other’s exemptions. A surviving spouse doesn’t need to worry that her estate is going to continue to grow after her spouse dies and that it will have to pay estate taxes. Both spouses can rest a little easier knowing that the estates they’ve worked so hard to create are more likely to be passed in their entirety to their heirs.

What if my estate giving is over the estate tax exemption? 

If your estate giving is over the exemption, then your estate will be taxed accordingly. This also means that there is no exemption remainder to port to your surviving spouse in the event that you die first. The good news is that this doesn’t affect your spouse’s exemption. If your spouse outlives you, he or she still has their full exemption.

I think I need an estate plan to take advantage of this. What should I do?

The first thing to do is to find an Orange County estate tax lawyer to help you create an estate plan. An estate lawyer has the knowledge, experience, and resources to help you tailor your estate plan according to both your desires and California law. Working with an estate lawyer to create your estate plan ensures that you can take advantage of all possibilities, including estate tax portability.  If you need assistance getting started, we invite you to contact our Newport Beach estate tax law firm at (949) 260-1400 to schedule a consultation.

 

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