Portability is the ability of a surviving spouse to port and use the unused portion of their deceased spouse’s federal estate and gift tax exemption (AKA DSUE, AKA Lifetime Exemption). Basically, it allows a surviving spouse to increase their own exemption amount by the amount that was not used by their deceased spouse. This can be a valuable tool for maximizing the assets that can be passed down to heirs without incurring federal estate tax. Portability was introduced as part of the American Taxpayer Relief Act of 2012 and has been subject to various adjustments since then.

To maximize the use of portability for assets held in trusts, it is important to work with a qualified estate planning attorney and law firm, such as Mike Massey Law in Texas, who can help structure trusts and estate plans in a way that takes into account the available exemptions and the potential impact of taxes.

Here’s a numerical example of how portability works in estate planning:

Let’s say John and Jane are a married couple with a combined estate worth $20 million. John passes away and his estate is worth $10 million, but he has not used any of his federal estate and gift tax exemption, which in 2022 is $12.06 million.

Under portability rules, Jane can use the unused portion of John’s exemption to increase her own exemption amount. This means that she can add $12.06 million to her own exemption amount, bringing her total exemption to $24.12 million. This allows her to transfer the entire $10 million estate tax-free to their descendants at the time of her death. Without portability, Jane’s total exemption would have been only $12.06 million, which would not have been sufficient to shelter their entire $20 million estate from estate tax. Note that this is just a simplified example for illustrative purposes, and the actual calculations and rules for portability can be more complex. Additionally, the amount of the federal estate and gift tax exemption, as well as the availability of portability, may be subject to change based on future legislation.

Additionally, it is important to note that the rules and regulations around portability are subject to change, and it is always advisable to consult with a qualified professional for up-to-date information and guidance.  The attorneys at Mike Massey Law in Texas may be able to help.