Obtaining and taking advantage of portability Featured

10:44am EDT August 17, 2011
Obtaining and taking advantage of portability

“Portability” became part of the federal estate tax law in 2010, and it is a welcome addition to the tools which estate planners have.

Historically in estate planning, a husband and wife would each have a revocable trust and would then divide their assets between themselves as equally as possible. In this manner, no matter which spouse pre-deceased the other, the maximum estate tax savings would be assured, says Jim Roseman, Vice President and Business Development Officer of FirstMerit Wealth Management Services.

All too often the assets could not be readily divided, as they included shares in a professional corporation or interests in a retirement plan, and if the spouse with fewer assets pre-deceased the other, estate tax savings could not be fully realized.

Portability treats a husband and wife as a unit, so if one estate does not fully use the estate tax exemption, the unused balance is available for the estate of the surviving spouse. With the current tax exemption of $5 million per tax payer, portability assures that the full $10 million would be available over both estates.

There are some cautions. The current law is only effective until December 31, 2012.  Unless Congress extends the law, portability will cease. It also still makes sense for each spouse to have a revocable trust and to attempt a division of assets. This way each spouse has considerable control over where their assets go, and a properly drawn trust will protect property from state estate taxes, a surviving spouse’s creditors, a second spouse etc. In addition, if the surviving spouse remarries, the unused exemption is forfeited.

In order to properly obtain portability, it will be necessary for both estates to file a federal estate tax return, even if the size of one estate would not normal require a filing. This filing serves to record the amount of the unused exemption still available.

Consideration is also being given to what might be appropriate in pre-nuptial agreements regarding the use of portability.

It is, therefore, very important for your advisors and potential executors, and trustees to understand what your estate plan is intended to accomplish and written authorizations and/or direction regarding portability and what needs to be done to accomplish it.

FirstMerit’s Wealth Management professionals would be pleased to discuss portability and your estate plan with you and work with your legal and tax advisors to accomplish your goals.

The contents of this article are meant for information purposes only and should not be relied upon as legal advice. The facts and circumstances unique to each situation may affect the legal and financial analysis as applicable to that situation. The opinions and information contained in this message have been derived from sources believed to be accurate and reliable, but FirstMerit Bank N.A. makes no representation as to their timeliness or completeness. This message does not constitute individual investment, legal, or tax advice. All opinions are reflective of judgments made on the original date of publication.

Jim Roseman is the Vice President and Business Development Officer of FirstMerit Wealth Management Services.