Changes to Estate Tax Exemption Portability: Portability can play a role in estate planning. In this finStream video, Philip Herzberg discusses Changes to Estate Tax Exemption Portability. Watch this video free to learn more about the role of portability in estate planning.

Article: How Changes to Estate Tax Exemption Portability Affect You

Estate tax exemption portability refers to the ability of a deceased individual’s estate tax exemption to be transferred to his or her surviving spouse. This allows the surviving spouse to use the deceased spouse’s unused estate tax exemption when calculating the estate tax owed on the surviving spouse’s own estate.

Under current U.S. federal law, each individual has a lifetime estate tax exemption of $11.7 million. This means that an individual can pass on up to $11.7 million in assets to his or her heirs without incurring any estate tax. If the value of an individual’s estate exceeds this amount, the excess is subject to a federal estate tax of up to 40%.

Estate tax exemption portability was introduced in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and made permanent in the American Taxpayer Relief Act of 2012. It was designed to help couples who have combined estates worth more than the individual estate tax exemption to avoid paying unnecessary estate taxes.

To take advantage of estate tax exemption portability, the surviving spouse must timely file a federal estate tax return, even if no tax is owed. This allows the surviving spouse to claim the deceased spouse’s unused estate tax exemption. The surviving spouse’s estate tax exemption is then increased by the amount of the deceased spouse’s unused exemption.

It’s important to note that estate tax exemption portability only applies to the federal estate tax. Some states also have their own estate or inheritance taxes, and these may not have provisions for exemption portability. It’s advisable to consult with a tax professional or estate planning attorney to understand the specific rules and regulations that apply to your situation.

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