Portability allows your estate to elect to permit your surviving spouse to use any of your available estate tax exemption that is unused at your death.  Until the beginning of this year, however, the longevity of portability had been in question — it applied only if you died in 2011 or 2012, and your surviving spouse made gifts using the exemption or died by the end of 2012.  Thus its potential effectiveness was limited. The American Taxpayer Relief Act of 2012, signed into law January 2, 2013, has made the portability provision permanent.

Portability is a simple solution and provides flexibility if you and your spouse have not done sufficient estate planning before the first spouse dies.  Portability is not always the best option for couples.

Consider depending on portability if you and your spouse’s estates are together worth significantly less than your 2013 combined exemption of $10.5 million and you do not expect your estates to increase above that amount.  Bear in mind that portability is not automatic.  Before a surviving spouse can have access to the deceased spouse’s exemption amount, the executor must make an election on a timely filed estate tax return — even if no estate tax is due.

If you and your spouse’s estates are together worth more than the $10.5 million threshold, consider eschewing portability in favor of setting up a trust arrangement. Making asset transfers between you and your spouse during life and creating certain trusts at death can produce similar results to portability but with some additional benefits.  Trusts can protect assets against creditors’ claims, provide professional trust management and avoid transfer tax on future appreciation of assets in the trust.

Your estate planning advisor can help you determine whether exemption portability is an appropriate strategy for your estate plan.  If you would like additional information or have questions, please contact Renee Andrews-Tushinski at 312.670.7444.