What Is Portability and Why Should I Care?

In Estate Planning by Coolidge Wall

It is official: Congress made the lifetime $5M (adjusted for inflation) estate and gift tax exemption permanent at the end of 2012. For individuals who die in 2013, $5.25M of their lifetime and at death transfers are excluded from the 40% estate and gift tax.

Congress also did married couples an additional favor – they also made portability permanent. Portability allows a married couple to combine their lifetime exclusion amounts – $10.5M per couple in 2013. If one spouse dies having used less than their $5.25M exclusion amount, their surviving spouse may add the remainder to their own personal exclusion amount. In order to preserve any remaining amount not used by the deceased spouse, the surviving spouse has to make an affirmative election on a Form 706 (Estate Tax Return), which must be timely filed. Portability may only be used by a surviving spouse. Since no one can predict the future, an Estate Tax Return should be filed, even if it is not technically required, to preserve portability, “just in case.”