Losing a loved one is tough. The last thing you want is to lose their hard-earned assets to taxes. Fortunately, a concept called “portability” can help you maximize your spouse’s estate tax exemptions, potentially saving you from a hefty tax bill. Let’s explore how it works and why it matters.
What is portability, and how does it work?
Portability lets a surviving spouse use their deceased spouse’s unused federal estate tax exemption. This can double the amount that you can pass on tax-free to your heirs.
For example, your spouse dies with an estate worth $6 million. The federal estate tax exemption is $13.61 million (as of 2024). Their estate uses $6 million of the exemption, leaving $7.61 million unused. As their spouse, you can now add this unused amount to your own exemption.
How portability benefits Kentucky families
Portability offers several benefits for your family’s estate planning:
- More tax-free inheritance: You can pass on more assets without paying federal estate taxes, preserving more for your children.
- Flexible planning options: You have more choices in how to plan your estate, knowing you have the backup of an increased exemption amount.
- Futureproofing: If exemption limits decrease in the future, having elected for portability can provide a safeguard by locking in the higher exemption amount from your spouse’s death.
These benefits can significantly impact a family’s financial legacy, potentially saving hundreds of thousands or even millions in estate taxes. It is crucial to discuss these advantages with your estate planning attorney to make the most of portability.
Future considerations
In conclusion, portability is a great tool for Kentucky families seeking to save on estate tax. By understanding and properly electing portability, you can potentially save your heirs significant amounts in federal estate taxes. However, it is important to remember that portability only applies to federal taxes, not state taxes.
Additionally, the law allowing portability (American Taxpayer Relief Act of 2012) could change in the future. Given these considerations, it is crucial to stay informed and work closely with an experienced estate planning attorney. This will help you make the most of this valuable option while also preparing for potential future changes in tax laws.