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Phone: (763) 420-5087
Roulet Law Firm, P.A.

Q
What is federal estate planning portability?

A

Portability of the federal estate tax exemption between married couples means that upon the passing of the first spouse, if the value of their estate does not require the use of their entire federal estate tax exemption, then the amount of the exemption that was not used can be used upon the passing of the surviving spouse. In simple terms, it means that married couples can easily double the amount of their estate that escapes federal estate taxes.

An example of portability may help. Assume Steve and Carrie are married, own all their assets jointly, and have a combined estate worth $8,000,000. Let us also assume that the federal estate tax exemption in effect at Steve’s passing is $5,250,000.

If portability were not in effect and Steve passed away first, here is what would happen. Steve could pass his entire estate, estate tax free, to Carrie pursuant to the unlimited marital deduction. However, when Carrie passes away, only $5,250,000 is exempt from federal estate tax. That would leave $2,750,000 subject to the estate tax.  At a federal estate tax rate of 40%, $1,100,000 in federal estate taxes would be due upon Carrie’s passing.

With portability in effect, Carrie could use Steve’s $5,250,000 exemption as well as her own and double the amount not subject to estate tax to $10.5 million. With a total estate of $8,000,000, the estate would not be subject to federal estate tax and would save $1,100,000.

If you would like to learn how you can avoid or minimize estate taxes and pass along more to your heirs, give us a call today at (763) 420-5087.