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Monday, March 29, 2021

What Does It Mean that the Estate Tax Exemption Can Be Portable?

Changes in the law are inevitable, especially during changes of presidential administrations. With President Biden’s term as president, there are likely to be changes in the arena of estate planning and related laws. In recent years, there have been some significant changes that have had serious impacts on estate planning. For instance, the Tax Cuts and Jobs Act (CJA) doubled the federal estate tax exemption for the years 2018 through 2025, unless it is revoked or extended. This put the federal estate tax exemption at $11.18 million for singles. Due to the fact that the exemption amount is indexed for inflation, it continues to increase. In 2019, it reached $11.4 million per individual. In 2020, it reached $11.58 million. For 2021, it sits at $11.7 million per individual and double that for married couples.

The federal estate tax exemption is important for those high net worth estates that run the risk of incurring a substantial estate tax. This is because only the portion of the estate that exceeds the federal exemption amount will be subject to the estate tax. The estate tax can take away a notable portion of the value of your estate from your beneficiaries. Planning to avoid this tax through employing available estate planning techniques and tools is, however, possible. There must be first an understanding of the nature of the federal exemption and its features, such as portability.

What Does it Mean that the Estate Tax Exemption Can Be Portable?

Back on December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (TRUIRJCA). This law made significant changes to the rules regarding federal estate taxes. Notably, it introduced portability of the federal estate tax exemption and, essentially, fundamentally changed estate planning.

In the past, much of estate planning was focused on married couples with high net worth estates dividing ownership of assets among themselves. Separating out the value of the assets between the two spouses would make it more likely for each of their estate to fall under the federal estate tax exemption amount. This was due in no small part to the fact that when one spouse passed away, any unused portion of the federal estate tax exemption would go away. Now, with portability, that unused portion passes on and is added to the allowed exemption amount for the surviving spouse.

The portability of the federal estate tax exemption is here to stay for the foreseeable future as President Obama also signed the American Taxpayer Relief Act (ATRA) into law. This was done back in January of 2013 and it provided that the portability feature become permanent. There is no need for it to be renewed. In fact, if Congress wanted to eliminate portability, it would have to take active steps to overturn it.

Estate Planning Attorney

The dedicated estate planning team at Verras Law is committed to remaining up to date with the latest in laws that impact our clients and their estate plans. We do this to help ensure that we best protect the interests of our clients and their loved ones. Contact Verras Law today.


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