What Is Portability In Estate Planning?

Essentially, portability in estate planning is a tax provision that allows the surviving spouse to add any unused estate tax exemption of the deceased spouse to their own.

What Does Portability Mean In Estate Planning?

As mentioned above, portability is an estate planning tax provision that allows the surviving spouse to add any unused estate tax exemption of the deceased spouse to their own.

The unused exemption can also be referred to as the Deceased Spousal Unused Exclusion (DSUE). Portability was first introduced to protect families from large estate taxes.

Understanding Portability

To fully understand the role of portability in estate planning, it’s crucial to know the estate tax exemption. As of  2023, the IRS allowed $11.7 million per individual as the amount of an estate to pass to heirs completely tax-free.

If one spouse passes away without using their entire exemption, the portion remaining can be transferred to the surviving spouse.

However, this process doesn’t happen automatically. To use portability, the decedent’s spousal executor of the estate needs to elect it on a well-timed filed estate tax return, even if there is currently no tax due. This IRS form 706 is very comprehensive, requiring detailed asset and liability listings.

Portability Benefits

The number one benefit of portability is the potential to greatly reduce the estate tax burden. For example, if one spouse passes away and their estate doesn’t use up the entire estate tax exemption, portability is there to allow the surviving spouse to utilize the portion that is unused. This essentially increases the surviving spouse’s estate tax exemption, which could potentially be up to twice the individual exemption limit.

Additionally, portability provides flexibility in asset protection planning. The surviving spouse can access the entire estate while still keeping the unused estate tax exemption, since it doesn’t require the use of trust structures, such as the bypass trust.

Limitations Of Portability

Portability does, however, feature a few limitations. This only applies to estate taxes and not generation-skipping transfer taxes. This means the DSUE cannot be applied to shield transfers to grandkids from taxes.

DSUE is not indexed for inflation, meaning the benefit could be eaten up by inflation. Also, portability is only available between spouses, and only the most recent deceased spouse’s DSUE amount can be utilized.

Source: 

1. “Maximizing Your Assets: A Guide To Portability In Estate Planning.” Doane & Doane https://www.doaneanddoane.com/maximizing-your-assets-a-guide-to-portability-in-estate-planning

Collaborative Divorce And Child Custody

Discussions about child custody issues are always difficult during a divorce. While there is no way to make them easy or comfortable, you can find ways to work together. The collaborative divorce process helps with tools and professionals to make child custody and other decisions a little more manageable. By working together as a team, you’re able to make the decisions that are best for the kids.

Collaborative divorce can make these challenging times more manageable. It requires you to work with your spouse at a time when you have decided you need to go your separate ways. When it comes to child custody, though, you want to do all you can to make the right parenting decisions. Collaborative divorce can help create pathways for you to cooperate. If you live in the Phoenix/Scottsdale area and want to learn more about collaborative divorce, contact Ogborne Law today.