Portability May Complicate Estate Planning

Posted By Steven Adler || 4-Nov-2011

While the new "portability" provision in estate tax law is considered a plus for many married couples in New York and elsewhere, it comes with both short and long term issues requiring careful consideration. Basically, portability allows surviving spouses to benefit from any unused portion of the estate or gift tax exemptions of their last deceased spouse. The idea behind it was to create a more equitable way of dealing with these issues and prevent the need for a myriad of estate planning measures geared to protect property and assets from additional tax after the death of a spouse. But like many new laws, it appears that the effort to be equitable has left as many questions as answers.

In the short run, the problem is the law was only passed at the end of last year and is currently effective through the end of 2012. Thus, it is only applicable to a spouse who dies before the end of next year. Some observers feel the law is only useful in those few instances where it is apparent that one spouse will not live beyond the end of 2012. Further, the estate of the deceased spouse must file an estate tax return electing to pass the exclusion on to the surviving spouse, even if there is no other reason for a return to be filed.

In the long term, issues may arise whereby the surviving spouse wants to remarry. However, the exclusion is only valid for the last deceased spouse. For instance, if a woman loses her spouse and gains the portability exclusion, she may lose it again if her subsequent spouse dies before she does.

These issues, in addition to the fact that it is anybody's guess what Congress will do with the portability provision and other estate tax issues at the end of 2012, makes for difficult estate planning problems--the very thing the portability provision was intended to avoid. The best approach seems to be for those New York residents potentially affected to confer with an attorney fully experienced in estate planning and administration. To deal with the complex matters at hand, consultation may help ease the stress of creating an effective estate plan that aims at taking full advantage of applicable laws.

Source: insurancenewsnet.com, " Pitfalls of 'portability': Estate tax law gives spouses extra protection, but has drawbacks," Oct. 31, 2011

Categories: Estate Planning