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Estate Planning Lawyer in Wichita Explains Estate Tax Portability

Weber Law Dec. 10, 2016

You may have heard the term “portability” used in conversations about the estate tax, but do you know what it really means? You probably know that when someone dies, their estate must pay the Federal gift and estate tax. A portion of each estate may get exempted from the calculation of the Federal gift and estate tax for that estate. What you may not know is that if a person is married and they pass away, the doctrine of “portability” permits their surviving spouse to use any portion of the gift and estate tax exemption that the deceased did not use.

Many married people do not use the entire $5.45 million gift and estate tax exemption that is available to them, so they and their spouse can receive the greatest benefit by taking care to ensure that any unused portion of the exemption passes to the surviving spouse. Portability is not automatic, though. For the deceased spouse’s unused exemption (DSUE) to apply, the executor of the deceased’s estate must make an election that includes a statement of the amount of unused exemption. The election must get made on Form 706, the “United States Estate (and Generation-Skipping Transfer) Tax Return,” and it must be made timely, within nine months of death. Additional time may be available if an extension gets granted for the estate’s estate tax return. Transferring the remaining exemption through election is a much simpler way to have the surviving spouse pay as little estate tax as possible without setting up multiple trusts and a complicated estate plan.

The federal estate tax rate is hefty, weighing in at forty percent. At that rate, it is easy to see how every single dollar’s worth of estate and gift tax exemption counts. Another reason why electing the unused portion of a deceased spouse’s federal estate and gift tax exemption matters is that estates are also subject to state estate taxes, and many states have estate and gift tax exemptions that are much lower than the federal exemption.

Despite the benefits of portability of the estate and gift tax exemption, there are still situations in which another combination of estate planning tools will work better to minimize the total amount of estate tax that will be paid on the deceased spouse’s estate as well as on the surviving spouse’s estate. It is critical that all couples, regardless of whether their assets total anywhere near the federal estate and gift tax exemption, consult with an estate planning attorney to ensure that they have everything that they need in place to provide support for each other and for their family after each of them passes away. To learn more about which estate planning tools will work best for your unique situation, contact the law office of J. Joseph Weber, P.A. online. You can also call us for an initial consultation. Our Wichita office is open Monday through Friday, from 8 a.m. to 5 p.m. We even offer some weekend and evening hours by appointment.