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Agoura Hills Estate Planning, Probate & Trust Attorneys

"Portability" - what's that got to do with the new 2013 IRS Estate Tax Return?

Providing Peace of Mind One Estate Plan at A Time

The IRS recently released its new Form 706, U.S. Estate Tax Return, here:

Thanks to the American Taxpayer Relief Act of 2012 (ATRA), and its new $5.25 million dollar estate tax exemption (for decedents dying in 2013), fewer taxpayers are required to file a Form 706.

But even if your net worth is under the exemption amount, your estate could still benefit by filing a Form 706 and claiming "Portability" – the ability to preserve your Deceased Spouse's Unused Exclusion ("DSUE"), and combine it with your own estate tax exclusion when you die.

In 2013, this makes good sense if (i) you and your spouse had a combined net worth over $5.25M, or (ii) your combined net worth was less than $5.25M when your spouse died, but you expect it to grow above that amount during your lifetime, or (iii) you are worried about future estate tax liability.

Before Portability was law, most married couples set up a Trust that would divide itself in two when the first spouse died – usually called "Trust A" and "Trust B". Trust B would preserve the DSUE. Trust A would use the surviving spouse’s exclusion.

Now with Portability, a surviving spouse may simply claim the DSUE without having to set up Trust B. All the surviving spouse has to do is file a Form 706, and claim Portability on page 4 of the tax return. When you do the math, it adds up quickly:

$5,250,000 (1st spouse dies in 2013; surviving spouse claims portability)

$5,340,000 (surviving spouse dies 2014)

$10,590,000 (estate tax free to the heirs)

Still have questions about estate tax? Call us at 818.707.8200 to discuss the specifics of your case. [For information only; may NOT be relied upon as legal advice.]