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Roulet Law Firm, P.A.

The Pitfalls of Federal Portability

Why Relying on Federal Portability for Your Minnesota Estate Tax Planning May Cost You and Your Family Dearly

Relying on federal portability for your Minnesota estate planning may cost you and your family dearly.  That is because portability is not a replacement for traditional trust planning. Many people have heard or read that with the higher federal estate tax exemption and the extension of portability, that they no longer need to do traditional trust planning. However, portability has a number of costly shortcomings.

First, portability does not provide for creditor protection for a surviving spouse in the way traditional trust planning can. A properly drafted trust can protect assets for the surviving spouse from creditors, lawsuits, Medicaid spenddown requirements and even from a divorce settlement if a surviving spouse remarries.

Second, it does not allow a surviving spouse and children to lock in appreciation on estate assets from estate tax at a survivor’s passing.

It does not provide for control and protection for blended families. If you and/or your spouse has a child or children from a prior relationship, you need to have a properly drafted trust to ensure your estate and your children are protected in the way you want.

Only a properly drafted trust can specify how money should be managed for minor children, who should manage it for them, when they should get it and any restrictions you want to place on it.

It does not protect your children’s inheritance from creditors, lawsuits and divorce.

It does not provide for protection in the event the law is changed and portability is no longer permitted. If there is one thing we can count on from the federal government when it comes to the laws surrounding estate taxes and estate tax planning – they are always changing. With the stroke of a pen, federal portability could vanish.

Portability does not apply to the generation-skipping tax, so in order to fully leverage the generation-skipping tax exemptions of both spouses for generation-skipping trust planning, a trust must still be created.