South Dakota Estate Planning - What is "Portability"?

In 2012, Congress passed the American Taxpayer Relief Act, and with it, made the concept of “portability” permanent.

"Portability" is a federal estate tax device which provides (1) that any unused estate tax exclusions transfers to the surviving spouse and (2) the surviving spouse is able to use the remaining amount of exclusion for their estate.

Estates that are over the exclusion amount are taxed at a rate of 40%. In 2014, the estate tax exclusion is $5.34 million for individuals and $10.68 million for married couples. Portability allows the unused exclusion to pass to the surviving spouse by filing IRS Form 706 within nine months of the passing of the spouse.

Here is an example of how portability is used:

If wife passes away in 2014 with $2 million of her exclusion unused then husband’s exclusion would total his own exclusion of $5.34 million as well as $2 million from his wife.

Remember, your estate is everything you own. It is your cars, land, collectibles, and other personal property. $5.34 million can be accumulated rather quickly. Also, it is important to remember that this is a federal law, and that the permanence of this concept may not continue if Congress decides to change the law.