How does portability fit into your Indiana estate plan?
Portability can be an important, yet often overlooked, aspect of federal estate and gift tax planning. It allows the surviving spouse to use their deceased spouse’s unused exclusion from federal estate taxes, potentially reducing, or even eliminating, federal estate taxes at their own death. However, it can overfund their surviving spouse’s will. Understanding how portability functions and how it fits in your estate plan will help you protect your assets and pass them on efficiently to your heirs. An Indianapolis attorney at Frank & Kraft explains how portability fits into your Indiana estate plan.
What Is Portability?
Portability refers to the ability of a surviving spouse to inherit and use the unused portion of their deceased spouse’s federal estate tax exemption. The federal estate tax exclusion is the amount that an individual can transfer upon death without triggering estate taxes. In 2025, federal estate tax exemptions will be $13.99 million for each individual. This means that a married couple could potentially shield up $27.98 millions from estate taxes by using portability. Portability allows the surviving spouse to add the deceased spouse’s unused exemption to their own, resulting in a larger total exemption. Portability allows the surviving spouse to carry over the deceased spouse’s unused exemption and add it to their own, providing a larger total exemption.
How Does Portability Work?
To take advantage of portability, the Executor of the deceased spouse’s estate must file IRS Form 706, the United States Estate Tax Return, within nine months of the decedent’s passing (with a possible six-month extension). This step is necessary even if there is no estate tax owed. The surviving spouse can use the unused exemption amount of the deceased spouse (DSUE) to offset future gift and estate taxes. This can be particularly useful for high-net-worth individuals who may exceed the exemption amount at the time of their own passing.
Portability and the Federal Gift Tax
Portability is not limited to estate taxes; it also applies to lifetime gifts. The federal gift tax has the same exemption amount as the estate tax. This means that a surviving spouse can use the DSUE they received from their deceased spouse to make tax-free lifetime gifts. This can be a strategic way to reduce the taxable estate while benefiting heirs sooner rather than later.
Portability and Your Indiana Estate Plan
While portability provides significant benefits, there are important limitations and considerations to keep in mind. Portability, for example, is not automatic. Even if there is no estate tax due, the Executor must elect portability by submitting Form 706, regardless of whether or not it is owed. In the event of failure to file, the unused exemption is lost. State taxes are separate from federal taxes in terms of portability. Some states have their own estate taxes, and the majority do not allow portability. If you live in an estate tax state, additional planning might be required. The Generation-Skipping Transfer Tax (GST) is not included in the portability. The GST tax exclusion, which is applicable to transfers to grandchildren and more distant descendants, is not transferable. GST tax planning requires special planning. The remarriage of a spouse can also affect portability. The portability from the first marriage could be lost if the surviving spouse remarries, and their new spouse predeceases them. Portability is not always available. This could result in the loss of portability. Join us for a FREE seminar to learn more about how we can help you incorporate portability into your Indiana estate plan. Contact an Indianapolis estate planning attorney to learn more about incorporating portability in your Indiana estate plan. Call
Frank & Kraft
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