Hyden, Miron & Foster, PLLC Law Blog

Thursday, March 25, 2021

Portability of the Estate Tax Exemption

Many may not realize it, but estate planning is not just something important that you put in place and then should forget about. Because estate planning reflects so much of current laws, current family dynamics, and members, as well as current life situations, it should be revisited when things change. Laws change, there are additions and losses in families, and life situations change. This means that your estate plan should remain updated to accurately reflect the ebbs and flows of life. For instance, an important and significant change came to estate planning back in December of 2010 when President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (TRUIRJCA) into law. This piece of law created portability for the estate tax exemption. But, what does that mean?

Portability of the Estate Tax Exemption

TRUIRJCA ushered in a significant new chapter in estate planning when it introduced portability regarding the federal estate tax exemption for married couples. What portability of the estate tax exemption means is that the amount of the estate tax exemption that goes unused for the first spouse to pass away, can then be transferred to the surviving spouse and applied to his or her estate. Should the first spouse to pass away use up the estate tax exemption in full, however, there will be nothing remaining to transfer to the surviving spouse. If there is an amount of the exemption that goes unused, however, the surviving spouse can have that unused portion added to his or her own estate’s exemption amount.

There are a few things that are important to note about portability of the estate tax exemption. First, the portability is only available to couples who are married. Secondly, it only applies to the federal estate tax exemption. There are only two states, Hawaii and Maryland, that have provisions for state estate tax portability as of 2020. Each year, the federal estate tax increases as it is indexed for inflation. For 2019, the exemption sat at $11.4 million. In 2010, it increased to $11.58 million. For 2021, the federal estate tax is $11.7 million per person. The exemption amount is subtracted from the total value of an estate. The remaining balance of the estate value will be subject to estate tax. Because the federal estate tax is rather substantial, there are relatively few estates that end up having to pay estate taxes, at least at the federal level.

The good news also is that the portability of the estate tax exemption looks like it is here to stay. President Obama signed the American Taxpayer Relief Act (ATRA) into law on January 2, 2013, which made portability permanent. In order to undo this, Congress would need to take active steps to repeal it.

Estate Planning Attorneys

Staying up to date in the latest of estate planning and tax law can be, confusing and overwhelming. The dedicated attorneys at Hyden, Miron & Foster, remain steadfast in their commitment to staying up to date on the most recent developments so that they can be the most effective advocates for their clients. Contact us today.

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