What Does Portability Mean?

Portability technically means something that can be easily moved or carried. The term can be used in several contexts. For example, software portability means the software is easy to transfer to another computer. Portability of retirement and pension funds indicates that a worker may transfer retirement funds when taking a new job. In Florida, homeowners may move some or all of their homestead exemption benefit to a new, qualifying home under the Save Our Homes provision. Although the term is used in various ways, we’re only going to review portability as it relates to lifetime estate and gift tax exemptions

Portability of Tax Exemptions

Tax law is complex. Calculating what we owe often depends on what exemptions or deductions are available. The following taxes are pertinent when considering federal estate tax exemptions:

• Federal Estate Tax is paid by estates with assets worth more than the federal estate tax exemption limit. The estate and gift tax exemption will be $12.92 million per individual for 2023 gifts and deaths, up from $12.06 million in 2022. This increase means that a married couple can shield a total of $25.84 million without having to pay any federal estate or gift tax.
• Gift Tax is paid on taxable lifetime gifts, that is, gifts that exceed the annual exclusion amount. Currently, individuals may give $17,000 to an individual without having to pay any gift tax. Couples can double that amount to $34,000. However, gifts that exceed the limit are reported to the IRS on a Form 709 Gift Tax Return. After exceeding the annual gift tax exclusion, the amount gifted begins to erode the lifetime gift and estate tax exemption.

If a deceased spouse still has some or all of their lifetime exemption, why file a tax return?

Preserving Portability

When the value of an individual’s estate falls below $12.92 million, the estate does not have to pay federal estate tax. So, the estate’s personal representative is not required to file a federal estate tax return. However, failing to file that return may adversely affect the surviving spouse’s estate.

To take advantage of portability, the deceased spouse’s unused exemption amount needs to be transferred to the surviving spouse. This is done through the filing of IRS Form 706, the United States Estate (and Generation-Skipping Transfer) Tax Return.

Learn More

John Mangan is an experienced Florida estate planning attorney who is board certified in Wills, Trusts & Estates by the Florida Bar. At Law Offices of John Mangan, P.A., we help clients develop an estate plan that’s appropriate for their circumstances. Call us at 772-324-9050 to set up an appointment or use our Contact Form. With our office located in Palm City, we also assist clients in surrounding communities like Stuart, Hobe Sound, Jupiter, and Port St. Lucie.