• Home
  • About Us
    ▼
    • Gratia Schoemakers
      ▼
      • Community Outreach Program
    • Testimonials
  • Virtual Services
  • Estate Planning
    ▼
    • Estate Planning Basics
    • Last Will and Testament
    • Revocable Living Trusts
    • Durable Power of Attorney
    • Medical Power of Attorney
    • Living Will
    • Family Estate Planning
    • LGBTQ Estate Planning & Asset Protection
    • Kids Safety Plan™
    • Business Succession Planning
    • Guardianship
      ▼
      • Guardianship Planning
    • Special Needs Planning
    • Legacy Preservation Planning
    • Asset Protection
    • Trusts
    • Pet Trusts
    • Gun Trusts
  • Probate
    ▼
    • Texas Probate Guide
    • Probate of a Will
    • Texas Affidavit of Heirship
    • Texas Small Estate Affidavit
    • Texas Heirship Determination
    • Texas Muniment of Title
    • Trust Administration
  • Family Law
    ▼
    • Divorce
    • Collaborative Divorce
    • Mediation
    • Custody / Visitation
  • Blog
  • FAQs
    ▼
    • FAQs – Videos
    • FAQs – Estate Planning
    • FAQs – Beyond Money in Estate Planning
    • FAQs – Divorce and Estate Planning FAQs and Myths
    • FAQs – Estate Planning for Newlyweds Myths and FAQs
    • FAQs – Estate Planning for Young Adults
    • FAQs – The Estate Planning Cast of Characters
    • FAQs – Expecting an Inheritance
    • FAQs – Myths and FAQs – Planning for Conflict Prone Families
    • FAQs – New and Expanding Families
    • FAQs – Pet Trusts
    • FAQs – Probate
    • FAQs – Standalone Retirement Trust Myths and FAQs
    • FAQs – Trust Modifications
    • FAQs – Unwinding Obsolete Planning
    • FAQs – Why You Want to Avoid Probate
    • FAQs – Year-End Planning Myths and FAQs
  • Contact
    ▼
    • Virtual Estate Planning Login
    • Client Portal
  • Skip to primary navigation
  • Skip to main content
  • Skip to footer

PROTECTING YOU, YOUR FAMILY, YOUR FUTURE | SCHEDULE AN APPOINTMENT | CALL US TODAY! (832) 408-0505

GP Schoemakers, PLLC

Protecting You, Your Family, Your Future

BOOK AN APPOINTMENT

  • Home
  • About Us
    • Gratia Schoemakers
      • Community Outreach Program
    • Testimonials
  • Virtual Services
  • Estate Planning
    • Estate Planning Basics
    • Last Will and Testament
    • Revocable Living Trusts
    • Durable Power of Attorney
    • Medical Power of Attorney
    • Living Will
    • Family Estate Planning
    • LGBTQ Estate Planning & Asset Protection
    • Kids Safety Plan™
    • Business Succession Planning
    • Guardianship
      • Guardianship Planning
    • Special Needs Planning
    • Legacy Preservation Planning
    • Asset Protection
    • Trusts
    • Pet Trusts
    • Gun Trusts
  • Probate
    • Texas Probate Guide
    • Probate of a Will
    • Texas Affidavit of Heirship
    • Texas Small Estate Affidavit
    • Texas Heirship Determination
    • Texas Muniment of Title
    • Trust Administration
  • Family Law
    • Divorce
    • Collaborative Divorce
    • Mediation
    • Custody / Visitation
  • Blog
  • FAQs
    • FAQs – Videos
    • FAQs – Estate Planning
    • FAQs – Beyond Money in Estate Planning
    • FAQs – Divorce and Estate Planning FAQs and Myths
    • FAQs – Estate Planning for Newlyweds Myths and FAQs
    • FAQs – Estate Planning for Young Adults
    • FAQs – The Estate Planning Cast of Characters
    • FAQs – Expecting an Inheritance
    • FAQs – Myths and FAQs – Planning for Conflict Prone Families
    • FAQs – New and Expanding Families
    • FAQs – Pet Trusts
    • FAQs – Probate
    • FAQs – Standalone Retirement Trust Myths and FAQs
    • FAQs – Trust Modifications
    • FAQs – Unwinding Obsolete Planning
    • FAQs – Why You Want to Avoid Probate
    • FAQs – Year-End Planning Myths and FAQs
  • Contact
    • Virtual Estate Planning Login
    • Client Portal

How to Minimize the (Voluntary) Federal Estate Tax with Portability

May 1, 2014 By Gratia P. Schoemakers, Esq.

Surprising to most people, the federal estate tax is a voluntary tax.  Estate planning attorneys used to say, “You only pay if you don’t plan.”  Now, portability provides both an alternative and a back up plan to lifetime tax planning.  This means you might be able to minimize or even eliminate federal estate taxes even if you didn’t plan.  Here’s how.

Portability allows married couples to use two estate tax exemptions and save significant amounts in estate taxes without lifetime planning and without the division of assets.  This planning option first appeared in 2010, but, because it was a temporary measure, many estate planners were hesitant to rely on it.  It became permanent law in 2013 and is now considered a viable tool for many married couples.income tax

The Key Takeaways

EVERYONE still needs lifetime estate planning to protect themselves, their families, and their assets. (Estate planning is not just about tax planning and it’s not just about money.)

  • The failure to use both federal estate tax exemptions may cause an unnecessarily high tax bill for married couples.
  • Portability lets married couples use both of their exemptions without lifetime tax planning.
  • Portability is not automatic—an estate tax return must be filed after the death of the first spouse, generally within nine months.
  • Trust planning is still highly useful for both tax and non-tax reasons (e.g., asset protection and family line protection) and can be used with or without portability.

How Portability Works

When portability was made permanent in 2013, Congress also made the $5 million federal estate tax exemption permanent (with annual increases tied to inflation).  As a result, most families don’t have to worry about federal estate taxes.

However, if your net estate is more than $5 million and you are married, portability allows your surviving spouse to use your individual estate tax exemption as well as his or her own, allowing the transfer of up to $10+ million in assets with no estate taxes, saving millions from Uncle Sam’s clutches.

Unlike trust tax planning, which must be done while both spouses are alive, portability is available after the first spouse dies and is a valuable back-up plan for couples who neglected lifetime tax planning.

Note: Portability is not automatic. An estate tax return (Form 706) must be filed within nine months after the death of the first spouse, or within any extension granted. If no timely return is filed, portability and the deceased spouse’s unused exemption (estate planning attorneys call this the “DSUE”) are forever lost, perhaps, causing the estate to pay more in estate taxes than was necessary and leaving less for the family.

Interestingly, remarriage does not change the identity of the most recently deceased spouse, and a surviving spouse can use multiple DSUEs.

Here’s an example:

Bob and Sue were married for many years.  When Bob died, Sue’s attorney filed an estate tax return, thereby “electing” portability. Some time later, Sue married Phil. She decided to use Bob’s DSUE during her lifetime and made gifts to their children.

When Phil died a few years later, Sue’s attorney filed an estate tax return for Phil’s estate, making portability available.  And, when Sue died, her estate was able to use both her exemption and Phil’s DSUE.  Sue was able to use three federal estate exemptions and completely avoided the federal estate tax.

Keep in mind that if Sue had not used her first husband’s (Bob’s) DSUE before Phil died, it would have been wasted.  Why?  Because Phil would have become her most recently deceased spouse.

What You Need to Know

Trust planning can be used with or without portability and is still highly relevant for couples with any size of estate.

When there are children involved, especially if they are from a previous marriage or relationship, trust planning can allow the first spouse who dies to provide for the surviving spouse and keep control over who will eventually receive his/her share of the estate.

In addition, trust planning can protect assets from a beneficiary’s irresponsible spending, creditors, medical crises, lawsuits, and divorce proceedings, allowing the assets to remain within the family for generations to come. Trust assets can also provide for a special needs beneficiary without losing valuable government benefits.

Actions to Consider

  • Ask your estate planning team if and when you need to be concerned about state estate taxes and state inheritance taxes. (Some states have their own death/inheritance tax, often with a lower exemption than the federal estate tax. As a result, it is possible that an estate will be subject to state taxes even though it is exempt from federal)
  • When a spouse dies, ask your estate planning attorney whether using portability is appropriate for you. (Most married couples can benefit from portability, even if only as a preventive estate planning measure.  The value of assets may increase to more than one exemption before the surviving spouse dies.)
  • If your second (or third) spouse is seriously ill, ask your estate planning attorney you should use any remaining DSUE to make lifetime gifts to beneficiaries.
  • Ask your estate planning attorney whether the generation skipping transfer (GST) tax is a factor for you. The GST tax is not portable and needs its own planning analysis.
  • When your spouse dies, be sure the estate tax return (Form 706) is prepared and filed by a qualified professional such as an estate planning attorney.
  • Ask your estate planning team about non-tax trust protections such as asset protection and family line protection.

Filed Under: Estate Planning Tagged With: Taxes

Footer

Clear Lake Location
1100 NASA Parkway, Ste 420J
Houston, TX 77058

Serving These Areas

Harris County and Galveston County
Houston
Galveston
Clear Lake
Friendswood
Dickinson
LaMarque
League City
Kemah
Pearland

Contact Us
Get Directions
(832) 408-0505

Privacy Policy
The information contained in this Website is subject to our Disclaimer and Terms and Conditions.