Portability is actually a simple concept. It means that if one half of a married couple doesn't use up the entirety of the federal estate tax exemption at death, the surviving spouse can use this leftover portion, plus his or her own exemption. It makes a high federal estate tax bill less likely.
This provision has changed the way estate planning can be approached today.
Here are the basics:
What if a couple's combined assets are far less, say, well below $5 million? Many experts still recommend taking advantage of portability because assets can rise in value, especially if the second death could be decades away.
Not opting for portability can shortchange a survivor, as it allows spouses to leave assets to each other free of estate tax. People have to be willing and able to plan ahead. Also, portability rules allow surviving spouses to carry the unused exemption amount into their next marriage, but there are limits: Taxpayers can't pile up an unlimited amount of exemptions from several marriages.
Tailor your estate plan to your individual situation and discuss portability with your wealth and tax advisers, as well as your estate attorney, as the law allows spouses to leave assets to each other free of estate tax.
Finally, note that this is largely applicable to those who have experienced a life-changing event in 2017. As you move into the new year, new rules are in effect, so contact us soon to make sure your estate plan reflects the changes to the estate tax.
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