Even though portability now allows married couples to use up both spouses’ estate tax exemptions without having to make lifetime asset transfers or set up trusts, this “easier” path isn’t necessarily the better path. For couples with large estates, making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn’t offer.
With portability, if one spouse dies and part (or all) of his or her estate tax exemption is unused at death, the estate can elect to permit the surviving spouse to use the deceased spouse’s remaining estate tax exemption. But making the portability election doesn’t protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does.
Also, the portability provision doesn’t apply to the GST tax exemption, and some states have lower exemptions and don’t recognize exemption portability. For example, Maryland currently only allows a $1,500,000 exemption and does not recognize portability. Although the Maryland estate tax is set to re-couple with the Federal rules beginning in 2019, for many planning using a Credit Shelter Trust can save tax. Credit shelter trusts offer GST and state estate tax planning opportunities, as well as creditor and remarriage protection.
If you’d like to learn more about credit shelter trusts or other estate planning strategies for your situation, please contact us at 703.385.8888.