Portability of the Estate Tax Exemption

By David Hammond

The federal estate tax is applicable to the transfer of property after a person’s death. The tax can end up taking a significant portion of the estate’s value. The good news is, however, that the tax only applies to the part of the estate’s value that exceeds the federal estate tax exemption amount. With proper planning, many can succeed in avoiding the federal estate tax in whole or in part. In order to do so, however, you must first understand the federal estate tax exemption, related laws, and the appropriate estate planning techniques used to avoid such taxation of an estate.

Portability of the Estate Tax Exemption

In recent years, there have been several significant pieces of legislation relating to the federal estate tax exemption. For instance, the Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption amount. This means that the exemption moved up to $11.18 million per person for the years 2018 through 2025. With exemption levels being indexed for inflation, the exemption amount has gone up still. It sat at $11.4 million for 2019, $11.58 million for 2020, and it has now hit $11.7 million for 2021. Please note that these exemption amounts are for individuals. It is twice the amount for married couples.

Regarding the estate tax exemption for couples, a most notable piece of legislation signed by President Obama on December 17, 2010, represented a significant shift in estate planning law. This piece of legislation, named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (TRUIRJCA) introduced the portability feature to the federal estate tax exemption. You see, prior to TRUIRJCA, estate planning was focused in no small part on having married couples divide up ownership of assets so each spouse’s estate could fall under the estate tax exemption amount in full or even in part.

The portability of the federal estate tax exemption for married couples eliminated the need to plan in such a way. The portability feature means that when one spouse dies and his or her estate value does not use up to the total available estate tax exemption, the unused portion of the estate tax exemption is then added to the available estate tax exemption for the surviving spouse. When the surviving spouse passes away, his or her estate will enjoy the estate tax exemption for an individual, plus that unused estate tax exemption portion remaining from his or her spouse’s estate.

For planning purposes, there are a few other important things to note. First, the portability feature only applies to the federal estate tax exemption. Only two states offer portability at the state estate tax level. Second, the portability feature is only available for married couples. Third, it looks like the portability feature is here to stay for an indefinite amount of time. When President Obama signed the American Taxpayer Relief Act (ATRA) into law back in 2013, this law made the portability feature permanent in the way that it does not need to be renewed. In fact, Congress must take active steps to overturn it in order for it to go away.

Estate Planning Attorneys

At CDH Law, our team of dedicated estate planning attorneys wants to help you ensure that the value of your estate is maximized for the benefit of those you care about most. Contact us today.

About the Author
David is a former military prosecutor and defense lawyer with over a decade of experience fighting for service members and their families. He served nine years and two combat tours as an active duty US Army officer, then joined the Reserves and settled down in Syracuse to be near family. Now representing people across Central New York charged with serious felonies, misdemeanors, DWIs, and traffic offenses, he puts the same level of commitment into his civilian law practice. If you have any questions regarding this article, you can contact David here.