Tuesday, January 21, 2014
As I have previously discussed, portability regulations state that when a surviving spouse makes a transfer that is subject to an estate or gift tax, she may take into account the deceased spouse's unused exclusion (DSUE) amount when calculating the exclusion amount for her tax liability on that transfer.
Currently this allows married couples to transfer $5.34 million per spouse tax-free. However, in order to exercise this option the executor must elect portability by filing and estate tax return despite the fact that there is zero tax liability. Before the portability regulation, after the death of the second spouse, the first spouses tax exemption would be lost. Before the regulation, estate planners would use bypass trusts. Despite the new portability regulation, trust experts are still advocating the use of trusts because of their flexibility and protections in particular situations such as shielding against angry spouses, creditors, or others that might bring an action against an heir or preventing a step parent from eliminating a step child from inheriting.
See Deborah L. Jacobs, Estate Planning For The 99%, Forbes, Jan. 19, 2014.