To know the role of Portability in Estate Planning, you need to know the meaning of “estate” and “portability” individually. The term Estate has nothing to do about the size of your house. It is actually a term for someone’s assets, including their home(s), investment accounts, cars, bank accounts, etc.
As per the article “Federal estate tax and portability considerations” in The Times Heralds, today, the federal estate tax influences very few people; before considering the federal estate tax, an individual must have assets worth more than $11.4 million and a couple with $22.8. But it does not mean that one should not request an estate tax return.
To better understand the concept of Portability and its benefits, let’s dive deep and understand What Is Portability In Estate Planning, And What Are Its Impacts?
What Is Portability In Estate Planning
The term “Portability” is used to explain a corresponding new clause in federal estate tax law. This new clause allows the surviving spouse to utilize any remaining federal estate tax exemption of their demised partner. It protects assets from gift tax throughout the life of the surviving spouse or/and estate tax at the demise of a living spouse. This procedure is called DSUE (Deceased Spousal Unused Exclusion).
The Portability was formulated to reduce the harsh effect that estate taxes might have on married couples who haven’t deeply planned for increasing both spouses’ federal exemptions from estate taxes.
However, while fixing one problem, Portability has become another complexity in planning to minimize overall state and federal taxes. It is necessary to know that according to current law, the total of higher lifetime exemptions is “sunset.” It will move back to about $5 million effective January 1, 2026.
For instance, Ron and Maria are a married couple. Ron died last year with an estate value of $2.06 million, which means he has $10 million worth of his unutilized all-life exemption ($12.06 million – $2.06 million). If Maria elected Portability in 2022, she would now have an all-life exemption worth $22.06 million ($12.06 million + $10 million).
Suppose Maria makes it to the date mentioned above. In that case, she still has an exemption worth $15 million ($10 million transferred from Ron’s Estate + $5 million of her exemption).
This way, the DSUE (Deceased Spousal Unused Exclusion) is maintained regardless of the present exemption as per the law. If Maria doesn’t elect Portability, she will lose Ron’s unused exemption, and her Estate will become taxable at her bottom threshold.
Read More:- Fair Estate Planning Guide For Second Marriage
How Does One Receive Portability?
Getting Portability is not automatic because a person has to follow a complete procedure to get that. To seize and use the unutilized exemption of the demised spouse, the Estate of the deceased spouse has to request a federal estate tax return. It forms an election that allows the surviving spouse to use that unused exemption.
Benefits Of Portability
The primary benefit of Portability is the freedom to do things on your own. It permits both the living partners to visit their estate planner and make an earlier request to transfer all assets in the way they want if they die in the future. And if one of them dies in the future, the other one can follow a procedure to merge their estate tax exemptions to decrease estate tax.
Why Don’t Some People Prefer To Elect Portability?
Even after the high call for Portability, there are some individuals for whom Portability is not a major concern. Also, the estate tax won’t even apply to some people.
The main reason some people do not prefer elect portability is their cost concern. Because to elect Portability, the Estate of the demised spouse has to request an estate tax refund, which introduces some complications and involvement of costs in that procedure.
That is why it is essential to discuss it first with your family member and ensure they know entirely about the cost requirement and the possible benefit one can get from Portability. This understanding of Portability can help a person make an informed decision about whether to form that election.
Conclusion
Portability is a method to simplify the concept of estate planning. It offers married couples a technique to utilize the exemptions of both spouses. It does not require an Estate Tax Trust Exempt at the demise of the first spouse.
And if you have any doubts regarding the concept of Portability and its impact on Estate Planning, Estate Planning with Nirva is here to help you! Our team is filled with qualified and professional experts with deep knowledge of estate laws.
Our concerned services protect the assets and money of you and your loved ones, avoiding expensive litigation. We educate and offer people attorney-drafted solutions at very reasonable charges. To get the benefits of our services, kindly contact us at 844-995-8155 or mail us at info@estateplanningwithnirva.com.
Frequently Asked Questions
In general, Portability is a method for spouses to join their exemption from gift tax and Estate. That means it’s a procedure where a living spouse can seize and utilize the remaining estate tax exemption of a demised spouse.
You don’t automatically inherit your spouse’s remaining exemption. It is vital to file IRS Form 706, the United States Estate and Generation-Skipping Transfer Tax Return, to form an election to attach their remaining exemption to yourself, even if the case estate does not owe a tax.
Form 706 should be filed between or within nine months or sixteen months from the time of death if the return request is made for an extension to file. Several spouses can request an exception from this rule if the Estate does not have to index a tax return because its worth doesn’t surpass the exemption.
The election that transfers an amount of DSUE to a living spouse refers to the portability election. The estate tax return might be required to be filed for a deceased person who was not a citizen of the U.S. or a nonresident if that person had U.S-located assets.
One of the typical rules is that switching to other mobile services is only allowed after ninety days of your mobile activation date or from the last porting date of the number. Also, you can switch your mobile service provider within the same service zone.