September 19, 2013

When a person dies, not all of his or her estate will be subject to federal estate taxes. A base amount of his or her estate, an amount equal to or less than the federal estate tax exemption, will not trigger any federal estate tax liability. A recent article discusses how an individual may be able to double his or her federal estate tax provision to $10.5 million.

This estate-planning maneuver utilizes the portability provision. This provision, which is only available to married spouses, allows one spouse to transfer any unused portion of his or her federal estate tax exemption to the other. For example, if the first spouse to die has an unused estate tax exemption of $3 million, the surviving spouse can add that $3 million to his or her $5.25 million estate tax exemption to enjoy a total exemption of $8.25 million.

Therefore, if the first-to-die spouse does not utilize his or her $5.25 million exception amount, it may pass directly to the remaining spouse, giving him or her a federal estate tax exemption of $10.5 million. Portability is not automatic, however. If you would like to utilize this feature, you must timely file IRS Form 706. In order to be considered timely, this form must be completed within nine months of the first-to-die spouse’s death.