What Married Couples Need To Know About Portability

10:15 pm Estate Planning

Marriage What Married Couples Need To Know About PortabilityThe recent fiscal cliff tax deal ushered in a great estate tax break for married couples: permanent portability. This allows surviving spouses to add any unused portion of a deceased spouse’s lifetime exemption to their own $5.12 million tax-free exemption.

Here are some important rules for married couples to remember when it comes to portability:

Portability only applies to deaths after December 31, 2010.

Due to the unified credit, which combines an individual taxpayer’s lifetime gift tax exclusion with the estate tax exclusion for a total of $5.12 million per person in 2012 (adjusted for inflation each year), portability applies to lifetime gifts.

Portability applies only to U.S. citizens.

Portability does not apply to same-sex married couples, since federal law does not yet recognize same-sex marriage.

Portability is not automatic. The executor handling the estate of the deceased spouse must transfer the unused exemption to the surviving spouse. The executor must file an estate tax return nine months following the death of the first spouse, even if no tax is due. If a return is not filed, the surviving spouse will not be able to take advantage of portability.

Although the estate and gift tax exemption is adjusted for inflation each year, portability is not.

If the surviving spouse remarries, he or she is allowed to continue to use the unused exemption of his or her deceased first spouse. If the second spouse dies first, he or she can no longer use the first deceased spouse’s unused exemption – the unused exemption of the second spouse would then come into play.

Portability does not apply to the exemption from the generation-skipping transfer tax.

Married couples are urged to seek counsel on comprehensive estate planning to protect assets for themselves and their heirs. Contact us today and let our Newport Beach law firm help you with all your financial planning needs.

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