Estate Tax Tinkering: Portability in the Not-so-boring Twenties.

• Author: Foss, Mary Kay
• Position: Estateplanning

The year 2010 started out to be the "year without an estate tax," hut Congress began tinkering with the it before the year was over. Portability was added for estates of those dying in 201 1 or later. At first it was a short-term provision, but the 2012 Tax Act made it permanent.

Portability is just for surviving spouses. If the estate of the first spouse to die is unable to use all of the available exemption amount, the unused amount is "purled" to the surviving spouse. This amount is called the Deceased Spouse Unused Exemption (l)SUE) Amount.

When portability was first effective, the exemption amount was $5 million as adjusted for inflation; that amount was $5.12 million for 2012. In 2017. before the next major change, the exemption amount had grown to $5.49 million. The Tax Cuts and Jobs Act of 2017 made two major changes:

* It doubled the exemption amount to $10 million increased by inflation for 2018-25

* A different methodology was used to determine the inflation amount, which made the inflation calculation grow a little slower. But even at the gradual pace, the 2022 amount is $12.06 million.

To elect portability Form 706 must be filed by the "executor" of the estate.

Pluses & Minuses

Estate planners soon discovered benefits and problems with portability. Some possible problems relate to the willingness to file Form 706--if not required and the identity of the executor.

For example, if someone passed away in 2021 with their net share of assets totaling $6 million, by filing an estate tax return, their spouse could have a total exemption amount of between $5.7 million and $11.7 million in addition to the current year's exemption amount if they pass away in 2025 or earlier.

The DSUE amount cannot exceed the exemption amount in the year of the survivor's death, so the scheduled decrease from more than $ 12 million to about half of that is a big drop. However, the surviving spouse can use the DSUE amount during life to make gifts. That's a great solution for high-net-worth families, but for someone with only $6 million or so in 2021, gifts may not be a priority.

The DSUE amount is the difference between the current year exemption and the taxable estate. If the decedent's net assets of $6 million were all going to a Bypass Trust, the portability amount would be $5.7 million. However, if the executor was able to make a QTIP election for that Bypass Trust, the taxable estate could be zero and the DSUE amount could be $1 1.7 million.

To "QTIP...