PME Estate Planning, Trust, and Probate Blog

Welcome to the PME LAW Blogs. In this blog, we will focus on PME Estate Planning, Trust, and Probate Blog developments, particularly within the state of California. Nothing in this blog should be construed as legal advice. PMELAW.com is a public website, so communications are not privileged. Copyright Perkins, Mann & Everett (PME LAW) © 2015. All rights reserved.

Portability –Preserving the Federal Estate Tax Exemption When Your Spouse Passes Away

Written by: Curtis D. Rindlisbacher, Esq.

For 2015 the federal estate tax exemption if $5,430,000 per person. This exemption is indexed for inflation each year. This means a married couple can leave up to $10,680,000 to their intended non-charitable beneficiaries free from federal estate tax. Prior to portability, both exemptions could only be used if the trust assets were split into two separate trusts when the first spouse passed away in what is commonly referred to as an AB trust plan. After portability, the full exemption is still available to the surviving spouse even if the trust assets pass directly to the surviving spouse so long as the surviving spouse makes a timely election by filing a federal estate return and making the election. If this election is not made timely, the exemption of the first spouse to pass away may be lost.

The IRS has recently issued final regulations governing this portability election. These final regulations apply to the estates of decedents who died on or after June 12, 2015. The temporary regulations still apply to estates of decedents who died on or after January 1, 2011 but before June 12, 2015. These rules clarify that a regulatory extension of time to make the portability election will only be granted to estates that have a gross value below the estate tax exemption in effect in the year of death. Also, an administrator of the estate of a decedent who was not a U.S. citizen at the time of death cannot make a portability election on behalf of the non-citizen decedent.

Married couples who have an existing estate plan should consult with their attorney to determine if changes should be made in light of this portability option. It is possible that the estate plan can be simplified by eliminating the AB trust structure. However, there are a number of tax and non-tax reasons that an AB trust structure may still be appropriate.

Please do not hesitate to contact our office if you have any questions about the final estate tax portability rules.