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Portability“Portability” is a new estate planning concept, having only been created in 2011.  Portability can be a large blessing for Americans, but is also complicated because IRS rules regarding portability are always changing.  Fortunately, the IRs recently clarified some of the rules.

So, how can portability help you and your family?  If it applies to you, it can help you save hundreds of thousands of dollars in estate and gift taxes.  However, you do not automatically get portability, so you have to do some work to get it.

Why should I care?

Each of us has an estate tax exemption, and portability allows our spouse after we die to claim whatever amount of exemption that we did not use.  This can possibly double the amount of exemption the surviving spouse can use, which in turns protects your estate from taxes and effectively pass on more of your wealth to your loved ones.  Ultimately, this gives you more flexibility in your estate plan and allows you to plan around your goals and family’s needs rather than the tax code.

What’s new with portability?

Claiming portability has often been confusing.  Until recently, a surviving spouse had only 15 months to make what is called the portability election to choose portability.  Now, the IRS put out a new regulation giving two years after the first spouse passes away to make the exemption. The IRS has also opened a temporary window to file a late portability election as long as you submit it before January 2, 2018.

If your estate is larger than $5.49 million or not a US citizen or resident, the 15-month window still applies.  To be safe, you should get qualified tax and legal advice to make sure you are not accidently making a mistake.

What do I need to do now?

If your spouse passed away after 2011 and you either did not claim portability, or if you are unsure if you did, now is the time to do something about it.  Even if you chose not to claim portability before, you should review your situation and decide if you want to now claim if.

Even though January 2 seems a long ways away, you do not want to wait.  The deadline will arrive before you know it, and it takes time to review finances and determine if portability is right for you.  Now is the time to contact a tax or legal professional and start this process.