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Tax Exemption Portability Crucial in Estate Planning


tax exemption portabilityWhen people think portability, they imagine lightweight laptops and folding chairs. These items owe their existence to ingenious inventors satisfying the craving for convenient transport. With this definition in mind then, it only makes sense that an estate planning tool designed for easy “transport” of tax exemption from one person to another would be called Tax Exemption Portability.

“After portability came into being on January 1, 2011, the unused estate tax exclusion amount could be “ported” to the surviving spouse for use in making gifts and sheltering his or her own estate, writes estate tax expert Lorraine F. New in her article from the Michigan Bar Journal, “When the First Spouse Dies: A Word to All Wise Probate Attorneys, Tax Planners and Advisors.”

“The 2016 exclusion amount is $5.45 million, meaning a married couple could shield $10.9 million from federal estate and gift taxes. It can be done by creating two roughly equal trusts holding $5.45 million in assets, or by using portability.”

Tax Exemption Portability

As Ms. New relates, prior to tax exemption portability, there were other cumbersome ways to take advantage of maximum exclusions. Experienced estate planners usually recommended separate revocable trusts with divided assets to take advantage of the maximum exclusion rate. Estate Planning Portability, like wristwatch-sized computers, simply makes the transfer easier and more convenient.

How to Choose Tax Exemption Portability

“To elect portability at the first death, the executor of the decedent must file federal estate tax return Form 706. This form lists all the assets of the deceased spouse and indicates their value and to whom they go. The executor then makes a portability election of the unused estate tax exclusion amount on the return,” according to Ms. New.

The executor needs to file the request (or a request for an extension) within six months. After that, the executor can still appeal forth exemption portability but will need to go through the labor-intensive and expensive process of a Private Letter Ruling. Sometimes the IRS will allow the Private Letter Ruling if circumstances outside the executor’s control, like illness or disability, made it impossible to file on time. The IRS may also accept lack of experience as an excuse if the executor is not knowledgeable or the inheritance issues are too complex. The IRS may also allow it if the executor was relying on a tax professional who failed to properly advise him/her.

“With the availability of Tax Exemption Portability,” says Experienced Waterford Estate Planning Attorney Kathryn Wayne-Spindler, “there should be no reason for family members to lose precious assets to the IRS. I make sure that my probate clients are aware of their options and help them with the necessary paperwork to take advantage of the tax exemption portability after the death of a spouse.”

Oakland County Attorney Kathryn Wayne-Spindler has more than 20 years of estate planning experience. She stays current on the latest developments and can help clients throughout Southeastern Michigan with their estate plans, including Tax Exemption Portability. Contact the law office of Kathryn Wayne-Spindler & Associates in Milford, MI at 248-676-1000. The lawyers handle cases in Oakland, Washtenaw, Wayne, Livingston and Genesee Counties. They have satisfied clients in Milford; Highland; Hartland; White Lake; Commerce Township; Walled Lake; Waterford; West Bloomfield; Howell; South Lyon; New Hudson; Linden’ Grand Blanc; Holly and many more local communities.

Written and Posted by Christine Donlon Long, Communications’ Specialist for Kathryn Wayne-Spindler & Associates.