Portability of Estate Tax Exemption

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRUIRJCA” for short) into law. As part of this law, significant modifications were made to the rules governing federal estate taxes, gift taxes, and generation-skipping transfer taxes.

In addition, TRUIRJCA introduced for the first time the concept of “portability” of the federal estate tax exemption between married couples for the 2011 and 2012 tax years. Then, on January 2, 2013, President Obama signed the American Taxpayer Relief Act (“ATRA” for short) into law.

Under the provisions of ATRA, this portability feature of the estate tax exemption between married couples was made permanent for 2013 and will remain a permanent part of federal estate tax law going forward.

Definition of Portability of the Estate Tax Exemption
So what does “portability” of the estate tax exemption mean? In simple terms, portability of the federal estate tax exemption between married couples comes into play if the first spouse dies and the value of the estate does not require the use of all of the deceased spouse’s federal exemption from estate taxes.

The amount of the exemption that was not used for the deceased spouse’s estate may be transferred to the surviving spouse’s exemption so that he or she can use the deceased spouse’s unused exemption plus his or her own exemption when the surviving spouse later dies. (Note that with regard to state estate taxes, currently only Hawaii offers portability at the state level, and Maryland will begin offering portability of its state estate tax exemption at the beginning of 2019, for decedents who die on or after January 1, 2019.)