The estate tax is somewhat similar to income tax except unlike income tax, there is an exemption amount. In the case of estate tax, the exemption amount is currently $5.45 M. That is per individual, so if you are a married couple, it’s $10.9 M ($5.45 M x 2). That’s a large exemption, so it’s not very common for estate tax to be due unless you possess a sizable estate. Portability is when the surviving spouse claims the deceased spouse’s unused portion of the deceased spouse’s estate tax exemption limit.
For example, assume the deceased spouse dies with a taxable estate of $1.7M. The deceased spouse still has $3.75M ($5.45M-$1.7M) available that is not used. The surviving spouse, unless the law changes again, still also has $5.45M available as an estate tax exemption. Accordingly, by making the portability election on the deceased spouse’s estate tax return, he/she can claim the deceased spouse’s unused portion as well, thereby increasing the available exemption amount for the surviving spouse to $9.2M ($5.45M + $3.75M).
Although it might not be necessary in all situations, this can be very helpful to a surviving spouse, particularly one who has taken over a family business and/or real estate, the value of which could appreciate considerably over time. The surviving spouse should talk with a competent estate planning professional as soon as possible following the death of the deceased spouse, because there are deadlines to make the portability election, which is typically nine months from the date of death of the first spouse.
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