Saturday, December 25, 2010
The portability clause in the new estate tax law allows spouses to preserve their federal exemption amounts without using bypass trusts. Answers to what are likely to be frequently asked questions on the topic are below:
- Does this provision help me if my spouse died years ago? No. It applies to deaths after Dec. 31, 2010.
- Does portability apply to lifetime gifts as well as assets that pass through an estate plan? Yes. The two are expressed as a total amount.
- Is portability automatic? No. The executor will need to transfer the unused portion of the exemption.
- Is the amount that's portable adjusted for inflation? No.
- Can I use my exemption instead to provide for children from a previous marriage? Yes.
- Is this a subject that should be covered in prenuptial agreements? Maybe.
- Does portability also apply to the exemption from generation-skipping transfer tax? No.
- Do I still need a bypass trust? Maybe, for reasons like asset protection or sheltering appreciation.
- Is portability here to stay? It’s set to expire on December 31, 2012.
For the explanations for these short answers, see Deborah L. Jacobs, Married Couple’s Guide to the New Estate Tax Law, Forbes, Dec. 23, 2010.