Portability is a feature of the 2012 American Taxpayer Relief Act passed earlier this year. It came as a welcome relief to many but there is still much confusion and skepticism surrounding this concept.
Portability can instill a false sense of security among individuals. I have received many questions regarding whether a trust or even estate planning are necessary now that we have portability. Portability has been previously written about on Epilawg (see What is Portability, Permanent Estate Tax Relief, Much Ado About Nothing, Portability & Gifting). As a reminder, for an individual passing away in 2013, the federal estate-tax exclusion is $5,250,000. A transfer from one spouse to another is typically tax-free. Portability allows the surviving spouse, through an election on a timely filed estate tax return, to use the deceased spouse’s unused exclusion amount. Since a couple can effectively transfer $10,000,000 free of federal estate tax, this can avoid the need to create complex trust structures or other devices.
Beware! Portability applies for purposes of federal estate taxes. Minnesota does not have portability. Consequently, a surviving spouse cannot use the predeceased spouse’s unused exclusion. Further, Minnesota’s estate-tax exclusion is only $1,000,000.
A Minnesota resident cannot rely on the federal estate-tax exclusion and portability to avoid estate taxes. A trust structure or other device may still be warranted to avoid Minnesota estate-tax. It is imperative that you speak with an estate planning attorney to further understand these concepts as they relate to your specific situation.
