Portability of Estate Tax Exemption

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRUIRJCA” for short) into law. As part of this law, significant modifications were made to the rules governing federal estate taxes, gift taxes, and generation-skipping transfer taxes.

In addition, TRUIRJCA introduced for the first time the concept of “portability” of the federal estate tax exemption between married couples for the 2011 and 2012 tax years. Then, on January 2, 2013, President Obama signed the American Taxpayer Relief Act (“ATRA” for short) into law.

Under the provisions of ATRA, this portability feature of the estate tax exemption between married couples was made permanent for 2013 and will remain a permanent part of federal estate tax law going forward.

Definition of Portability of the Estate Tax Exemption
So what does “portability” of the estate tax exemption mean? In simple terms, portability of the federal estate tax exemption between married couples comes into play if the first spouse dies and the value of the estate does not require the use of all of the deceased spouse’s federal exemption from estate taxes.

The amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies. (Note that with regard to state estate taxes, currently only Hawaii offers portability at the state level, and Maryland will begin offering portability of its state estate tax exemption at the beginning of 2019, for decedents who die on or after January 1, 2019.)

Portability of Estate Tax Exemption

Examples of Portability of Estate Tax Exemption
Some examples using numbers should help to illustrate the concept of portability of the federal estate tax exemption between spouses:

Result Without Portability
Assume Frank and Jennifer are married and have all of their assets jointly titled and their net worth is $8,000,000, Frank dies first and the federal estate tax exemption is $5,340,000 on the date of his death, after the Estate Tax Exemption is reconsidered as proposed in 2024, and portability of estate tax exemption between spouses is not in effect:

  1. Under these facts, when Frank dies his estate will not need to use any of his $5,340,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction will allow Frank’s share of the joint assets to be automatically transferred to Jennifer by right of survivorship without incurring any federal estate taxes.
  2. Assume that at the time of Jennifer’s later death the federal estate tax exemption is still $5,340,000, the estate tax rate is 40 percent, and Jennifer’s estate is still worth $8,000,000.
  3. With Frank’s $5,340,000 estate tax exemption completely wasted, when Jennifer later dies she can only pass on $5,340,000 free from federal estate taxes.

Thus, Jennifer’s estate will owe about $1,064,000 in estate taxes after her death:

  • $8,000,000 estate – $5,340,000 exemption = $2,660,000 taxable estate
  • $2,660,000 taxable estate x 40 percent estate tax rate = $1,064,000 in taxes due

Result With Portability
Assume Frank and Jennifer are married and have all of their assets jointly titled and their net worth is $8,000,000, Frank dies first and the federal estate tax exemption is $5,340,000 on the date of Frank’s death, and portability of estate tax exemption between spouses is in effect:

$8,000,000 estate – $10,680,000 exemption = $0 taxable estate

  1. As above, when Frank dies his estate will not need to use any of his $5,340,000 estate tax exemption since all of the assets are jointly titled and the unlimited marital deduction allows for the automatic transfer of Frank’s share of the joint assets to Jennifer by right of survivorship and without incurring any federal estate taxes.
  2. Assume that at the time of Jennifer’s later death the federal estate tax exemption is still $5,340,000, the estate tax rate is 40 percent, and Jennifer’s estate is still worth $8,000,000.
  3. Enter portability of the estate tax exemption. Using the concept of portability of the estate tax exemption between spouses, under these facts Frank’s unused $5,340,000 estate tax exemption will be added to Jennifer’s $5,340,000 exemption, in turn giving Jennifer a $10,500,000 exemption.
  4. Since Jennifer has “inherited” Frank’s unused estate tax exemption and she can pass on $10,680,000 free from federal estate taxes at the time of her death, Jennifer’s $8,000,000 estate will not owe any federal estate taxes at all:
  5. Thus, portability of the estate tax exemption will save the heirs of Frank and Jennifer about $1,064,000 in estate taxes.

Note that Jennifer will not automatically “inherit” Frank’s unused exemption; instead, she must timely file IRS Form 706, United States Estate and Generation-Skipping Transfer) Tax Return, in order to make an affirmative election to add Frank’s unused exemption to her exemption. See Rev. Proc. 2014-18 for special rules that apply to the estates of married decedents who died after December 31, 2010, and on or before December 31, 2013.

Comparing Portability With the AB Trust System
Prior to the enactment of portability, the only way that married couples could pass on two times the estate tax exemption to their heirs was to use the AB Trust system. With portability, however, dividing the deceased spouse’s estate between the A Trust and B Trust is no longer necessary in many cases.

At Beyer, Pongratz and Rosen, we are experienced in dealing with factors around portability of estate tax exemption and we will help you navigate through any difficulty you may encounter.

~ Attorney Gregory R. Beyer

If you have additional questions about the Portability of Estate Tax Exemption, then please contact Gregory R. Beyer, Esq at the office of Beyer, Pongratz and Rosen, a Professional with close to 30 years of experience, by phone at 916-250-1511 or online For a Free Consultation.

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