Since 2011 in the U.S., married couples have been able to take advantage of portability for federal estate tax purposes, allowing them to share certain unused exemptions and save on their overall estate tax obligations.
Although portability is not an option for state-level estate taxes in Colorado (as of Dec. 2015), understanding how and when it can apply to federal estate tax obligations can be incredibly important to limiting future tax bills and preserving an estate for survivors.
Portability of the federal estate tax exemption is a provision by which the unused portion of a decedent’s exemption can be applied to the surviving spouse’s estate upon his or her death. When portability comes into play, the unused exemption from the first spouse who passed away will be added to the total exemption for the second spouse who passes away, effectively increasing the federal estate tax exemption that can be used upon the death of the second spouse.
When used strategically, portability can help minimize if not eliminate certain federal estate tax obligations for beneficiaries.
To elucidate the concept of portability and how it works, here is an example:
Let’s say married couple, Bob and Pam, jointly own all of the assets of an estate worth that is worth $4 million and that Bob passes away first. Since the assets are all jointly owned, they will be automatically transferred to Pam upon Bob’s death, with no federal estate taxes coming into play. This would leave Bob’s exemption (of roughly $2.6 million) unused, available for Pam.
When Pam passes away later (assuming the estate remains the same), the unused exclusion from Bob can be added to her exclusion (which would also be about $2.6 million), for a total of $5.2 million. Given that the exemption, with the application of portability, now exceeds the value of the estate, the beneficiaries who inherit Pam’s estate (let’s say their children) would not owe any federal estate taxes.
This ultimately means that more of the estate can be passed down to their intended heirs, rather than sending it off to the government to satisfy an estate tax bill.
Our experienced attorneys will take the time to go over Estate Taxes. It is not an easy subject to explain in 30 minutes about. It may take an hour to an hour and half, but our attorneys will make sure that you understand exactly what Estate Taxes are. If you have additional questions, our attorneys are here to answer them for you. You always want to make sure that you are talking to attorneys that are well knowledgeable in all aspects of Estate Planning like we are here at Phillips & Blow, PC.
We can discuss your estate planning needs and different options during our consultation. To schedule this meeting, call us at (303) 713-9147 or email us using the contact form at the top of this page.
From our offices in Denver, we serve clients throughout the southwest and southeast Metro Area, including (but not limited to) people in Highlands Ranch, Littleton, Castle Rock, Parker, Aurora, Greenwood Village, Englewood, Centennial, Wheat Ridge, Golden and Arvada.