What Is Portability?

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 benefits to a new, qualifying home under the Save Our Homes provision. 

As you can see the term is used in various ways. But, what does portability mean 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.

WHY PRESERVE PORTABILITY FOR ESTATE TAXES?

Preserving portability in the context of estate taxes and estate planning offers several significant benefits. 

Portability allows spouses to maximize the use of their individual estate tax exemptions, effectively doubling the amount of assets that can pass to heirs without incurring estate taxes. This ensures that couples can protect a larger portion of their combined wealth, providing financial security for their loved ones. 

Portability can mean a streamlined approach. This can help reduce administrative burdens and legal expenses, making estate planning more accessible and efficient for individuals and families. 

Preserving portability promotes fairness by treating spouses equally, regardless of who passes away first. It ensures that both partners have the opportunity to fully utilize their exemptions, regardless of the timing of their deaths. Overall, by preserving portability, estate taxes can be minimized, planning can be simplified, and equitable treatment can be ensured, ultimately benefiting families and promoting economic stability.

LEARN MORE

The Law Offices of John Mangan, P.A., strives to help clients develop an estate plan that’s appropriate for their circumstances. We have experienced Florida estate planning attorneys including those with either an LL.M in Taxation or that are board certified in handling Wills, Trusts & Estates by the Florida Bar.

Call us at 772-266-5108 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.