What is portability of estate tax exemption?
Portability is the term used to describe a relatively new provision in federal estate tax law that allows a widow or widower to use any unused federal estate tax exemption of his or her deceased spouse to shelter assets from gift tax during the surviving spouse’s life and/or estate tax at the surviving spouse’s death.
Does portability of the estate tax exemption occur automatically?
Importantly, portability is not automatic. In order for the surviving spouse to pick up and use the unused exemption of the deceased spouse, the deceased spouse’s estate has to file a federal estate tax return that makes an election to allow the surviving spouse to use that exemption.
Which states have estate tax portability?
A federal estate tax is in effect as of 2021, but the exemption is significant: $11.7 million, increasing to $12.06 million for deaths that occur in 2022.
What is the purpose of portability?
Portability is a provision in federal estate tax law that allows a surviving spouse to use any unused estate and gift tax exemption after the deceased spouse’s death. Portability can be used to protect the surviving spouse from having to pay steep gift or estate taxes upon a spouse’s death.
How is estate tax portability elected?
In order to elect portability of the decedent’s unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate’s representative must file an estate tax return (Form 706) and the return must be filed timely.
Will portability go away?
When President Obama signed the American Taxpayer Relief Act (ATRA) into law back in 2013, this law made the portability feature permanent in the way that it does not need to be renewed.
Should I file a 706 for portability?
There are special exceptions for filing late if only filing for portability, as long as it is filed with two years of the date of death. Filing Form 706 and electing portability will preserve the remaining exemption amount. There are a number of advantages to electing portability in your estate plan.
How do you get around estate taxes?
How to Avoid the Estate Tax
- Give gifts to family. One way to get around the estate tax is to hand off portions of your wealth to your family members through gifts.
- Set up an irrevocable life insurance trust.
- Make charitable donations.
- Establish a family limited partnership.
- Fund a qualified personal residence trust.
How is portability election made?
To properly make the portability election, the surviving spouse must timely file a federal estate tax return, known as the “United States Estate (and Generation-Skipping Transfer) Tax Return,” or “Form 706” for short.
What is the most you can gift someone tax free?
$15,000
In 2021, you can give up to $15,000 to someone in a year and generally not have to deal with the IRS about it. In 2022, this increases to $16,000. If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return.
What is the best way to avoid estate taxes?
What is an estate tax portability election?
This election is made on a timely filed estate tax return for the decedent with a surviving spouse. Note that simplified valuation provisions apply for those estates without a filing requirement absent the portability election.
Should Bob and Sue’s unused estate tax exemption be portable?
Since Sue has “inherited” Bob’s unused estate tax exemption and she can pass on $10,680,000 free from federal estate taxes at the time of her death, Sue’s $8,000,000 estate will not owe any federal estate taxes at all: Thus, portability of the estate tax exemption will save the heirs of Bob and Sue about $1,064,000 in estate taxes.
Is the estate tax exemption for married couples portable?
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)…
What is the estate tax?
Government Entities The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 PDF (PDF)).