Portability v. Credit Shelter Trusts

Some estate planners have suggested that portability, the ability of the estate of a surviving spouse to use the predeceased spouse’s unused estate tax exemption under the 2010 Tax Act, has made creating credit shelter trusts obsolete. However, the limited availability of the 2010 Tax Act coupled with portability’s estate tax return requirement suggest that portability may not be as beneficial as some estate planners believe.

Portability’s requirement that the surviving spouse file an estate tax return may actually increase costs and complexity of the estate, and unlike credit trusts, the deceased spouse’s unused exclusion amount does not protect post-death value increases of the predeceased spouse’s assets. Further, relying on portability may be less tax efficient than creating a credit trust because transfers by the surviving spouse during his or her lifetime may be taxable.

See Jon J. Gallo, J.D., Why Portability Isn’t a Cure-All, Journal of Financial Planning, Aug. 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.