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Answers to your questions about estate tax exemptions and portability

Over the past few years, you may have heard about a relatively new feature of federal tax law known as portability, which in some cases can help families minimize their estate tax burdens in a relatively straightforward way. Here you will find the answers to a few of the questions you may have about portability and its potential impact on your estate plan. For more detailed information about portability and whether it makes sense for you, be sure to talk things over with an attorney who is knowledgeable about estate planning and taxation issues.

What is portability and why does it matter?

Portability allows a surviving spouse to take advantage of any unused portion of a deceased spouse’s estate tax exemption. In other words, if your spouse dies and does not use all of his or her available individual exemption, portability allows you to claim the leftover exemption for your own estate. As a couple, this can help you minimize your overall estate tax burden and maximize the gifts you leave to your heirs.

In 2015, the maximum individual federal estate tax exemption is $5.43 million. This means that you and your spouse can each leave up to that amount to your heirs without incurring costly estate and gift taxes. Portability helps married couples take full advantage of their individual exemptions, which combine to create a total of nearly $11 million that can be transferred tax-free.

Do people with smaller estates need to bother with portability?

Even if your estate is well below the maximum individual exemption allowed under federal law, it may still be a good idea to elect portability after the death of a spouse. After all, you never know how much your circumstances could change – sometimes very quickly and unexpectedly.

For example, your home, business or other assets may undergo rapid appreciation due to unforeseen circumstances, or you may receive a substantial inheritance or other windfall. If such circumstances arise and you have not prepared for them by incorporating portability into your estate plan, more of your assets than necessary could end up going to the IRS instead of to your intended heirs.

How long do I have to decide?

In order to take advantage of portability, you only have a short time in which to act before the window of opportunity closes permanently. In most cases, you must file an estate-tax return within nine months after the death of your spouse if you wish to claim the benefits of portability.

However, as with any estate planning issue, it is important to get advice from a knowledgeable attorney before doing so in order to make sure it is the best course of action for your individual circumstances. This means that you must take action even sooner to allow time for a thorough evaluation of your options. To learn more about portability and other options for minimizing your estate tax burden, contact the Law Offices of Connie Yi to arrange a consultation.

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