What Is Estate Tax Portability, and How Will It Affect You?

In the United States, estate tax portability benefits married couples with larger estates. Though the concept of portability may seem complicated at first, understanding how to take advantage of it could save your family thousands on estate taxes.

The Basics of Estate Tax Portability

United States tax laws permit married couples who are both citizens to use the unlimited marital deduction. This means that spouses can transfer any amount of property or money to each other during their lifetimes or at their deaths, and the spouses will not pay tax on these transfers.

The laws still require spouses’ estates to pay estate taxes if the values of their estates on their deaths exceed the exemption amount. Federal law permits an approximately $11.18 million exemption per person in 2019. But spouses also can take advantage of estate tax portability to increase that exemption.

After one spouse passes away, the estate can choose to give all of the deceased spouse’s remaining exemption amount to the surviving spouse. In other words, if the deceased spouse’s estate is worth $5 million, the estate can give the remaining $6.18 million exemption amount to the surviving spouse. He or she would then have an exemption of $17.36 million upon his or her death, instead of the usual $11.18 million.

How Will Estate Tax Portability Affect You?

If you and your spouse own substantial assets, estate tax portability could help you keep estate taxes to a minimum. For many spouses, the value of their jointly owned real estate might tip the scales in making their estates potentially subject to tax upon their deaths. When the surviving spouse will inherit the real estate, that inheritance could greatly increase the value of his or her total estate. As a result, upon the surviving spouse’s death his or her estate could get stuck paying expensive taxes.

Further, spouses often leave the majority of their estates to each other. Since the surviving spouse will be leaving his or her estate to children or other relatives, the marital deduction will not apply anymore. This also could increase the taxes due, both on lifetime gifts to non-spouses and on inheritances passed on to relatives.

With an estate tax portability election, the surviving spouse can receive the benefit of the deceased spouse’s remaining estate tax exemption. This could reduce or eliminate the estate taxes that the surviving spouse’s estate would owe in the future.

Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.

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