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What is portability in estate planning?

One of the primary purposes of estate planning is to take full stock of one's assets and ensure that all of a person's property has a predetermined beneficiary when that person eventually passes away. If this is not planned out ahead of time, those assets suffer a greater-than-necessary depletion at the hands of federal estate taxes and other parties who may be able to siphon off pieces here and there.

One of the ways a surviving spouse can avoid losing huge potions of accumulated assets to federal estate taxes is through employing portability provisions. In broad strokes, portability is the ability of one spouse to enjoy the estate tax exemption of both the surviving and deceased spouse.

Federal estate taxes are levied against those with estates that exceed the threshold of $5.45 million, which must include the total of all gifts made within the deceased spouse's lifetime. Using portability, the remaining exemption, if there is any, can be employed by the surviving spouse. For instance, if an individual dies with an estate valued at $7 million, and has documented giving totaling $1 million, this would equal a total of $8 million. If the deceased has left everything to his spouse, the surviving spouse can use portability to enjoy an exemption that will cover the entire estate, instead of being taxed at 40 percent on everything over $5.45 million.

This is, of course, a gross oversimplification of a complex estate planning and tax preparation issue. If you are interested in making use of portability, the guidance of an experienced estate planning attorney can help you through the process and ensure that the proper steps are followed to maximize your savings.

Source: California Trusts, "Portability," accessed Oct. 19, 2016

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