What is portability and how does it apply to me?

Portability applies when one spouse of a married couple has died and it refers to the federal estate tax. A person’s estate must pay estate taxes when the person dies if they have MORE THAN a certain amount of assets in their estate. This year, the “more than” number is $12.92 million: if someone dies in 2023, their estate must have more than 12.92 million dollars to owe estate taxes. (Someone who died in 2022 had to have more than $12.06 to owe estate taxes.)

Portability allows a surviving spouse (the spouse who is still alive) to use a deceased spouse’s unused exclusion for federal estate taxes. This means that if someone had $5 million in assets when they died in 2022, then there is still $7.06 million of their exemption “remaining.” The surviving spouse can take that $7.06 million and add it to their exemption amount.

This year, the federal estate tax exemption is $12.92 million per person. That means a married couple can have $25.84 million if the surviving spouse elects to “port” the deceased spouse’s exemption amount if both spouses die in 2023.

To use the example above, if that surviving spouse dies in 2023, then they have $12.92 million + the unused $7.06 million of the deceased spouse, for a total of $19.98 million for the surviving spouse. (This doesn’t take into account separate property vs. community property, which is a whole new blog post.)

The applicable exemption amount is based on the year someone dies; for people who died in 2022, it was $12.06 million per person, or $24.12 million for a married couple. The number changes each year, and is adjusted for inflation.

The IRS recently issued a revenue procedure (Rev. Proc. 2022-32) that allows estates to elect "portability" of a deceased spousal unused exclusion (DSUE) amount as much as five years after the decedent's date of death.

If your spouse died in January 2018 and you have not filed an IRS Form 706, you must do so ASAP. I do not file these for clients, but I can refer you to a CPA who can assist you with this process.

If you want to talk about taxes and estate planning, please contact me.