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Thursday, March 25, 2021

What Is the Portability of the Estate Tax Exemption?

If you have a rather sizeable estate, it can be incredibly important to consider all of your estate planning options as the federal estate tax can take a large chunk of your estate’s value away from your heirs. The federal estate tax exemption will allow you to avoid some taxation as the exemption amount is subtracted from the value of the estate and only the remaining amount will be subject to the federal estate tax. In 2019, the federal estate tax exemption was at $11.4 million. The federal estate tax exemption is, however, indexed for inflation and does, therefore increase about every year or so. In 2020, it increased to $11.58 million and now, in 2021, it sits at $11.7 million.

In the past, before 2010, much of estate planning was dedicated to planning for the estates of married couples by trying to divide ownership of estate assets as evenly as possible between the two of them. This was because any amount that went unused by the estate of the first spouse to pass away was lost. Now, with the portability of the estate tax, things have changed.

What Is the Portability of the Estate Tax Exemption?

What portability of the estate tax exemption really means is that any unused amount of the estate tax exemption for a spouse can then be transferred to the surviving spouse so that the unused amount is added to the surviving spouse’s own estate tax exemption amount. As stated previously, it used to be that when a spouse passed away, any estate tax exemption that went unused by his or her estate was lost. Now, that unused portion can be added to the estate tax exemption held by the surviving spouse to be used when he or she passes away.

The portability of the estate tax exemption became an important update to U.S. tax law when President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (TRUIRJCA) into law on December 17, 2010. The portability of the federal estate tax exemption was introduced along with other significant changes to estate tax rules. Later, in January of 2013, President Obama signed another important piece of legislation into law, the American Taxpayer Relief Act (ATRA). The ATRA made the portability of the estate tax permanent. The law does not need to be renewed to remain effective. Instead, Congress would need to take steps to repeal the portability feature in order for it to go away.

The portability of the estate tax exemption can mean significant tax savings for those with substantially sized estates. Note, however, that the portability feature is only applicable to married couples. It is also only applicable at the federal level. Hawaii and Maryland are currently the only two states who have portability available at the state estate tax level.

Estate Planning Attorney

Do you have questions? You are not alone. Estate planning and related tax law can be difficult to unravel. Monk Law is here to answer your questions and help guide you through the estate planning process. Contact Monk Law Firm today.


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