The Wealth Counselor
Portability and Married Couples: A Viable Option
For maximum benefit, estate planning should happen as a team effort, with CPAs, insurance professionals, financial advisors, and attorneys working together strategically and cooperatively. When it comes to helping married couples plan, today’s strategies need to be considerably more thoughtful than in previous years. Although the estate tax exemption is ever increasing, portability is still an important option, particularly for high net worth clients.
Portability Is Here to Stay
In fact, there’s really no downside to including portability in a plan, other than having to file a federal estate tax return. In the past, planners did not know whether portability was here to stay and were hesitant to rely on its benefits. However, at the beginning of 2013, portability laws became “permanent” under the American Tax Relief Act of 2012 (ATRA). It is now an essential part of estate and financial planning.
Portability provides estate tax planning (without the use of credit shelter trusts) by permitting spouses to transfer their unused estate tax applicable exclusion amount to their surviving spouse. The surviving spouse can then use the deceased spouse’s unused exclusion (“DSUE”) amount for either gift or estate tax minimization or even elimination. In fact, they get to use all of the DSUE plus their own estate tax exclusion amount. This can be very beneficial if assets appreciated greatly after the death of the first spouse, or if the estate tax exclusion amount for the second spouse is lower due to legislative changes.
The Best of Both Worlds
Fortunately, your clients can have the best of both worlds. Portability and trust protections are not mutually exclusive. You can still utilize planning strategies, such as a QTIP (i.e., qualified terminable interest property) trust, providing asset protection and family line protection. So long as the portability election is properly made, the DSUE is reserved for estate tax minimization.
Remember, since the DSUE is a monetary asset, it must be included in estate and financial plans, as well as pre- and post-nuptial agreements.
It is also important to note that some states still have a state estate tax, some with exclusion limits below the federal exclusion. This means that tax planning is still relevant, even if the value of an estate is below the federal estate tax threshold.
What You Need to Know
Of course, you will want to ensure your clients get the best of both worlds: trust planning and portability. We would be happy to consult with you and to provide analyses of your clients’ plans.
Here are some ways you can immediately benefit your clients:
Contact our office for assistance in analyzing your clients’ plans for portability benefits. We’re here to help you avoid pitfalls and maximize benefits. Give us a call today!
200 S. Los Robles Avenue, Suite 530 • Pasadena, CA 91101 • Phone: (626) 795-1600