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​Portability of the Unused Spousal Exclusion

Consider Incorporating in Your Existing Estate Plan

VIEW WHITE PAPER (PDF)

​An estate plan that incorporates portability provisions could possibly reduce overall tax exposure when compared with a traditional estate plan.

SUMMARY

Portability of a deceased spouse’s unused exclusion amount (DSUE amount) became a permanent estate and gift tax provision as a result of the American Taxpayer Relief Act of 2012. The change allows the personal representative (or executor) of a deceased spouse to make an election on the decedent’s estate tax return to transfer or “port” the DSUE amount to the surviving spouse.

With the new possibilities portability offers, a married couple is not relegated to consuming the first spouse’s lifetime exclusion at his or her death. Portability extends the time available to use the exclusions of both spouses until the survivor dies.

This white paper covers the basics of how portability works as well as sample calculations to illustrate how the amount for portability is determined. Also included are an analysis of portability-type plans, the limitations of the approach, and how to handle portability with prenuptial agreements.

KEY TAKEAWAYS

  • With changes to the treatment of a spouse’s unused exclusion amount at death, traditional estate plans may no longer be the most efficient and effective approach for a couple.
  • Portability potentially eliminates the risk of losing part or all of the lifetime exclusion upon the first spouse’s time of death, if it was not fully used.
  • Depending on the complexity of the situation, a portability-type plan could involve property ownership decision or it could involve more involved processes such as trusts.
  • Effective use of portability could yield better results for many couples, and, as a result, estate plans should be re-evaluated based on this new consideration.

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