Portability Minimizes Taxes Owed

Did your spouse’s estate make a portability election? If not, there may still be time.
Portability helps minimize federal gift and estate tax by allowing a surviving spouse to use a deceased spouse’s unused gift and estate tax exemption amount. For 2023, the exemption is $12.92 million, but it’s scheduled to return to an inflation-adjusted $5 million on January 1, 2026.

Unfortunately, portability isn’t automatically available; it requires the deceased spouse’s executor to make a portability election on a timely filed federal estate tax return (Form 706). And many executors fail to make the election because the estate isn’t liable for estate tax and, therefore, isn’t required to file a return.

The numbers don’t lie
When there’s a surviving spouse, estates that aren’t required to file an estate tax return should consider filing one for the sole purpose of electing portability. The benefits can be significant, as the following example illustrates:

Bob and Carol are married. Bob dies in 2023, with an estate valued at $3.92 million, so his unused exemption is $9 million. His estate doesn’t owe federal estate tax, so it doesn’t file a federal estate tax return.

Carol dies in 2026, with an estate valued at $15 million. For this example, let’s say the exemption amount in 2026 is $6 million. Because the exemption has dropped to $6 million, her federal estate tax liability is $3.6 million [40% x ($15 million – $6 million)].

Had Bob’s estate elected portability, Carol could have added his $9 million unused exemption to her own for a total exemption of $15 million, reducing the federal estate tax liability on her estate to zero. Note that, by electing portability, Bob’s estate would have locked in the unused exemption amount in the year of his death, which wouldn’t be affected by the reduction in the exemption amount in 2026.

Take action before time expires
If your spouse died within the last several years and you anticipate that your estate will owe federal estate tax, consider having your spouse’s estate file a federal estate tax return to elect portability. Ordinarily, a federal estate tax return is due within nine months after death (15 months with an extension), but a return solely for purposes of making a portability election can usually be filed up to five years after death. Contact us at  virginia@virgielaw.com or 651-631-0616 with any questions regarding portability.
 
Virginia Ryan provides trust, will, probate, and business law services to clients in Maplewood Minnesota, and the surrounding areas of North Oaks, White Bear Lake, Lake Elmo, Grant, Mahtomedi, Dellwood, Woodbury, Oakdale, Roseville, Little Canada, Shoreview, Vadnais Heights, St. Paul, Hugo, Lino Lakes, Stillwater.