Understanding Portability of the Estate Tax Exemption

Estate planning could seem daunting, but it can also be made simpler by understanding key concepts. One of which focuses on the “portability” of estate tax exemption. Portability is a provision that allows a surviving spouse to add any remaining federal estate tax exemption from the deceased spouse to their own. Here’s how it works.If you’re preparing an estate plan, a financial advisor can help you understand key concepts to protect your assets.How Portability in Estate Planning WorksPortability could effectively double the tax exemption that a surviving spouse can use, thereby reducing tax liabilities. It was introduced by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and was made permanent by the American Taxpayer Relief Act of 2012.As an example, let’s take a couple where a spouse dies first and leaves behind an exemption of $5 million that was not used. The surviving spouse can now add this $5 million to their own exemption, thereby increasin...