Problems with The Estate Tax Portability Feature

Kathleen Sherby spoke about the tax portability provision at a clinic organized by the Society of Financial Service Professionals. The tax portability provision allows a surviving spouse to take advantage of the unused estate tax exemption of the spouse who dies first.

Sherby pointed out several problems with this provision of the Tax Relief Act. First, the provision is not indexed to inflation, which means that if the assets of the surviving spouse grow, the exemption may not be sufficient to cover the individual. There can also be problems if the surviving spouse gets remarried and the new spouse is wealthier than the first. Other problems include the lack of portability for the generation-skipping transfer tax, federal tax that is imposed on gifts, uncertainty as to when the provision will expire, among others. Sherby recommends using a credit shelter trust instead of relying on the portability feature.

Sherby and her co-presenter also addressed the increased lifetime estate, gift and GST exemptions. They pointed out several estate planning mistakes that could be mended by taking advantage of these opportunities. Lastly the speakers commented on the three future possibilities for the Tax Relief Act – Congress will either let the act expire, extend the 2001 tax law provisions for another 2 years, or make the estate tax provisions permanent.

See FSP Speaker Sees Worms in Estate Tax Portability Feature, Producersweb.com, Aug. 22, 2011.

Special thanks to Jim Hillhouse (Professional Legal Marketing  (PLM, Inc.)) for bringing this article to my attention.