Prior to estate planning laws being updated in 2010, an important part of the estate planning process for a married couple was to equalize asset value, in which both parties had legal title. Each spouse had their own lifetime gift tax and estate exemption; however, those exemptions couldn’t be shared.
The portability rule, however, allows unused lifetime gift tax and estate tax exemptions of a deceased spouse to be given to a surviving spouse. This ensures that the exemption is not lost. A married couple then gets an actual joint exemption that is based on two individual exemptions and it doesn’t matter what portion of the estate is owned by each individual spouse in a legal sense.
The 2018 levels for joint exemptions were officially finalized on March 4th and they are $22.36 million. The portability of the exemption is not automatic, highlighting why you need to set aside time to talk with an experienced estate planning attorney.
The transfer of an unused exemption amount to a surviving spouse can only occur if the executor takes care of this when the first spouse passes away. This occurs when an estate tax return is filed. Make sure you sit down with an experienced estate planning lawyer to talk through how these issues may influence you and your spouse.
