What Is Portability in Estate Planning?

Portability is a federal estate tax rule that applies exclusively to the estates of married spouses. The rule allows a surviving spouse to apply any unused portion of a deceased spouse’s individual federal estate tax exemption to the surviving spouse’s own estate, thereby increasing the surviving spouse’s federal estate tax exemption and reducing the tax liability of the surviving spouse’s estate, if the value of the estate exceeds the individual exemption. However, portability is only available if the deceased spouse’s estate files a federal estate tax return making the portability election.

The portability rule may provide an estate planning option for married couples to reduce estate taxes, but it does have limitations. Whether it is the most beneficial option for a specific married couple depends on the couple’s family and financial circumstances. Consulting with an experienced estate planning lawyer is essential to determining the best approach to reducing estate taxes for a specific married couple.

How the Federal Estate and Gift Tax Exemption Works

The State of Georgia does not have an estate or inheritance tax, but the federal estate and gift tax applies to all Georgia estates. The lifetime federal estate and gift tax exemption, which is an amount set by federal law, allows individuals to exclude the exemption amount from their taxable estate. However, if the total value of an individual’s post-death estate and lifetime gifts exceeds the exclusion amount, the estate must pay federal estate tax on the amount that exceeds the exemption.

Currently, the lifetime exemption is $13.61 million per person. However, if Congress does not act before January 1, 2026, the amount will automatically reset to about $7 million per person on that date. Our previous blog article, Does Sunset of the Current Federal Estate and Gift Tax Exemption Affect Your Estate Plan?, explains the details of the potential change.

What Does Portability Mean?

When the first spouse of a married couple passes away, the deceased spouse’s estate applies the individual federal estate tax exemption to avoid or limit estate tax liability of the estate. If the exemption used by the deceased spouse does not exceed the available federal estate tax exemption, the portability rule allows the surviving spouse to add the unused portion of the deceased spouse’s exemption to their own full exemption, thereby increasing the available federal estate tax exemption for the surviving spouse’s estate. For an estate of a surviving spouse with a value higher than the federal exemption, portability of the unused exemption amount can result in reduction of federal estate tax liability.

Portability is not available automatically. For the unused portion of a deceased spouse’s exemption to be available to the surviving spouse, the deceased spouse’s estate must file a federal estate tax return that makes the portability election. If a federal estate tax return making the portability election is not filed by the deceased spouse’s estate — which may be the case when the estate is below the federal exemption amount — portability is not available to the surviving spouse.

In cases where the value of the surviving spouse’s estate is below the individual federal estate tax exemption amount, the unavailability of portability does not impact the tax liability of the estate. However, if the surviving spouse’s estate exceeds the individual federal estate tax exemption and the deceased spouse’s estate did not use the entire exemption, portability can make a significant difference in the tax liability of the surviving spouse’s estate. For that reason, an estate with a surviving spouse should consider filing a federal estate tax return electing portability, even when filing a return is not required. Addressing portability in the estate plans of a married couple can ensure that portability is available to a surviving spouse.

Portability is a consideration in estate planning for married couples, because it provides an option that may reduce estate taxes. However, it is not the only option for reducing federal estate taxes and may not be the most suitable approach in specific family and financial circumstances. Getting advice from a knowledgeable estate planning attorney is the best way to evaluate your own unique situation.

Talk With a Georgia Estate Planning Attorney

In our Cartersville estate planning practice at Asset Protection & Elder Law of Georgia, we help clients with all aspects of creating and maintaining an estate plan, including addressing portability of a deceased spouse’s unused federal estate tax exemption as an option for reducing estate taxes.

We provide legal services to clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County, and Paulding County. Call us at (770) 382-0984 or contact us through our online form.