What is "Portability" in Estate Planning?
"Portability" was a revolutionary concept when it was introduced into the law for the first time ever in 2011. In 2013, the Congress and President Obama made "portability" a permanent feature of the federal estate tax laws.
Portability is a technique available to married couples to reduce estate taxes. It allows the surviving spouse to add the unused estate tax exemption of the first spouse to die to the surviving spouse’s estate tax exemption. In 2018, with proper planning, a married couple can now pass over $22 million to their children and grandchildren free of federal estate tax.
The law only provides one way to claim a spouse's unused exemption - by filing a federal estate tax return on IRS Form 706 for the estate of the deceased spouse and making the elections provided on that tax return. One unintended consequence - many estate tax returns are being prepared and filed that would not otherwise meet the filing threshold ($11.2 million in 2018) solely to make the portability claim. The requirements of Form 706 are lengthy and exacting. And there is no such thing as Form 706-EZ solely for portability filers. In for a penny, in for a pound.