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Categories: Estate Tax Planning

Portability of Estate Tax Exemption:

Portability of estate tax exemption allows a surviving spouse to utilize any unused estate tax exemption of the deceased spouse, effectively increasing the amount that can be transferred without incurring estate tax.

This provision was established under the American Taxpayer Relief Act of 2012 and enables the surviving spouse to apply the deceased spouse’s unused exemption amount to their own estate. For example, if the deceased spouse had an estate tax exemption of $11.7 million but only used $6 million, the surviving spouse can potentially apply the remaining $5.7 million exemption to their own estate. This mechanism helps to minimize estate tax liability for couples, enhancing their overall estate planning strategy.

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Alternative Meanings:
  • Portability of Estate Tax Exemption

    Portability of Estate Tax Exemption refers to the provision that allows a surviving spouse to inherit any unused federal estate tax exemption from their deceased spouse.

    This means that if one spouse passes away and does not fully utilize their estate tax exemption, the surviving spouse can add that unused exemption to their own, effectively increasing the amount of their estate that can pass tax-free upon their death.

    For example, if the federal estate tax exemption is $12 million and the deceased spouse's estate was valued at $5 million, the unused exemption is $7 million. The surviving spouse can then combine their exemption with the deceased spouse's unused portion, allowing up to $19 million to be passed tax-free at their death, provided the appropriate election is made on their estate tax return.

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