Portability Of Estate Tax Exclusion Now A Reality

In the weeks and months that led up to the ultimate passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 there were a number of items on the “wish list” of tax relief advocates. Of course an extension of the Bush era tax cuts was at the top of the list, but we also got some additional tax relief in the form of a reduction in the Social Security payroll tax by almost a third in 2011. These were the two biggest stories that came out of the passage of the bill, but there were also some improvements included that impact the field of estate planning quite profoundly.

The most significant changes would be the increase in the estate tax exclusion from the $1 million that had been scheduled up to $5 million and the reduction in the estate tax rate from the 55% that had been anticipated down to 35%. Clearly a 35% federal levy on money that has already been taxed is no picnic, but at least Uncle Sam is seeing fit to allow your heirs to receive the “bigger half of the sandwich,” as it were.

In addition to these changes that could be described as the “headline news” in estate planning circles there are some lesser publicized alterations to the tax code that are also of interest. One of these involves the portability of the estate tax exclusion.

Since the $5 million exclusion is per person, a married couple has a total exclusion of $10 million to work with. Before this bill was passed, the exclusion was not portable – meaning that if you were to pass away your spouse could not use your individual estate tax exclusion as well as his or her own.

Going forward in 2011 and 2012 the estate tax is now portable, so you do not have to worry about losing that additional $5 million cushion should your spouse pass away. This is another positive development that has come out of this tax relief bill and hopefully the portability of the estate tax exclusion will remain in effect beyond the sunset of this act at the end of the 2012 calendar year.

Portability planning opportunities suggests you should review your existing plan to see if modifications are in order and will serve your family.

Larry Parman
Founding Attorney