Federal Estate Tax Portability
Federal estate tax portability means that a surviving spouse can inherit the estate and gift tax exemption of a surviving spouse. Simply put, a couple can pass up to $10.86 million ($5.43 million for each spouse) in 2015 without the need for a trust.
To elect portability, a federal estate tax return, Form 706, must be timely filed at the death of the first spouse.
Example:Assume that Barney and Betty have joint assets of $10 million. Barney dies first and all the assets pass to Betty under the unlimited marital deduction. Barney uses none of his $5.43 million exemption.
Without Portability: Barney’s exemption goes unused and is wasted. Upon Wilma’s death, the amount of the $10 million estate that exceeds her $5.43 exemption will be subject to federal estate tax of approximately $1.6 million ($10.00M less exemption of $5.43M=$4.57M x 35% federal estate tax rate).
With Portability: A form 706 is properly filed to transfer Barney’s exemption to Wilma. Upon Wilma’s death, the $10 million estate is less than her $10.86 million exemption and the estate is passed to her heirs free of any federal estate taxes, saving $1.6 million.