Megan E. Cannella,left, and Frederick K. Schoenbrodt, II,right, of Bressler, Amery & Ross. Courtesy photos

What Is Portability?

"Portability" is the term used to describe a surviving spouse's use of the unused estate tax exclusion amount of a deceased spouse. Through application of the unified credit for estate and gift tax purposes to gratuitous transfers of wealth during life or at death, every U.S. citizen and domiciliary may exclude from federal estate and gift taxation an aggregate amount of the value of those transfers. That amount, known as the basic exclusion amount, is currently at a historic high of $12,920,000 per person. See Treas. Reg. Section 20.2010-1(e) (2019). At death, an individual who made no taxable gifts during life will have the entire basic exclusion amount remaining. An individual who made taxable gifts during life will have something less than the full basic exclusion amount remaining since a portion would have been applied to those lifetime gifts. In either event, the remaining basic exclusion amount, full or partial, will be available to apply against taxable transfers occurring at the individual's death.

Taxable transfers at death usually are transfers to beneficiaries other than the surviving spouse or charity, since the estate tax law generally allows for the unlimited deduction from the gross estate of amounts passing to a spouse or charity. When a decedent is survived by a spouse, the decedent's unused exclusion amount may be transferred to the surviving spouse and added to the survivor's own exclusion amount. The amount of the deceased spouse's unused basic exclusion is known as the deceased spousal unused exclusion amount, or "DSUE amount" under the applicable Treasury regulations. The transferability of the DSUE amount to a surviving spouse is known as portability.

Prior to the federal tax law's adoption of portability in 2010, each spouse's federal estate tax exemption, through application of that spouse's unified credit, was for the use of that spouse alone and not transferable to the survivor. Unused exemption was lost. In this pre-portability era, married couples often preserved the benefit of their respective exemptions by executing wills or revocable trusts that directed the predeceasing spouse's unused exemption to a trust, often for the survivor's primary benefit but structured in such a way that the trust assets would not be included in the survivor's taxable estate, commonly called a unified credit trust or bypass trust. The adoption of portability was intended to simplify the process by which a couple may preserve the use of both exemptions without relying on these trusts. The required process reflects this goal of creating a simple, straightforward method by which a couple can use both exemptions without relying on trusts.