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What is estate tax portability?

On Behalf of | Mar 13, 2019 | Estate Planning And Probate

You will work very hard throughout your life in New York to accumulate assets and properties with the hope of them one day benefiting your future generations. The thought of having to lose any of the overall value of your estate to taxes, then, may be quite disheartening. Yet an estate tax management strategy should be included as part of the estate planning process. With the proper preparation, you may be able to avoid paying estate taxes altogether.

How is this possible? Only a small percentage of estates are ever required to pay an estate tax in the first place. That is because the federal government has established an estate tax threshold that is updated annually (per Forbes Magazine, the threshold for 2019 is $11.4 million). If the overall taxable value of your estate is less than that amount, your estate does not owe any taxes. Furthermore, you can transfer up to that amount in gifts to beneficiaries without being subject to gift taxes.

What is the value of your estate is above the threshold? You may still be able to avoid estate taxes by transferring the unused portion of your estate tax exemption to your spouse. Say that you leave your all assets to your spouse. They can then combine their estate tax exemption with yours to protect up to $22.8 million. This needs to be planned, however. Otherwise, transferring your assets to them could push the overall value of their estate above the threshold and make it subject to tax.

The process of combining the estate tax exemptions of spouses is known as “portability.” Your spouse must file an estate tax return the year that you die electing portability. Doing this pushes the threshold to the higher amount, preserving your full wealth for your posterity.