The current estate tax exemption is $11.18 million and double that for married couples. There has been an increased emphasis in the estate planning industry on portability planning, particularly for those wealthy couples who have a combined estate that is above the $11.18 million mark but below the combined exemption amount.
A portability plan considers leaving everything at the time of the first spouse’s death inside what is known as a QTIP trust. That trust is generated for the benefit of the surviving spouse.
When the second spouse passes away, that person’s estate will benefit from the unused estate tax exemption of the first spouse to pass away in order to effectively increase the amount that the second spouse could pass on to heirs tax free at the time of his or her death. In order to use this exemption, known as the generation skipping transfer tax, it’s important to realize that while this structure could reduce or eliminate taxes for married couples, the exemption cannot be ported to a surviving spouse.
This requires advanced planning tactics, including one known as a reverse QTIP election, which could allow the trust to take advantage of the GST tax exemption of the deceased spouse. If the QTIP trust is appropriately structured, the surviving spouse is eligible to gift his or her income interest into the QTIP trust to those trusts that were specifically created for the advantage of future generations.
It’s important to realize that this particular structure is not appropriate for all families and could trigger estate tax and gift tax consequences if not created by an experienced and highly knowledgeable estate planning attorney who has awareness of these advanced planning opportunities.
No matter what type of trust you decide to use in the estate planning process, your lawyer can recommend various strategies aligned with your individual needs.