Reports from Heckerling 2017 - Portability: Lots of Questions, Few Easy Answers

Continuing with our reports from the 2017 Heckerling Institute on Estate Planning

The 51st Annual Heckerling Institute on Estate Planning began with a plenary session on portability, and the fact that there are so many questions, and so few answers. The session was presented by Lester B. Law (Abbot Downing) and Howard M. Zarisky (Consulting Council). The take away from the session is not to take portability for granted.  The executors must consider all the options and make a timely election if they decide it is the best strategy.

Portability came into existence with the Tax Reform Act of 2010 (TRA 2010), which allows the executor of a decedent’s estate to transfer the deceased spouse’s unused exemption (DSUE) to the surviving spouse.  This allows the surviving spouse to use for estate or gift tax purposes the unused amount of the deceased spouse’s estate. 

Portability is elected by the timely filing of a complete estate tax return for the deceased spouse.  Although the generation tax exemption of the deceased spouse is not portable, the executor could make a reverse Qualified Terminable Interest Property (QTIP) election for the marital trust to allocate the decedent’s unused Generation-Skipping Transfer (GST) exemption in cases where a marital trust is being funded.

Planning with portability is an art and not a science.  Care must be taken to analyze the different options available, including whether to elect portability, and the use of a non-marital trust vs. funding the marital trust.  The advantages and disadvantages of the various options must be discussed with the client and decisions documented. 

Matters to consider include the size of the estate, potential beneficiaries, type of assets, step up in basis and potential appreciation, keeping in mind that the DSUE amount is fixed and does not appreciate over time.

The surviving spouse can use the DSUE for gift and estate tax purposes.  The speakers recommend using the DSUE as soon after the first spouse death as possible.  This will help shelter  future appreciation and  the potential loss of the amount if the surviving spouse remaries.  The risk with a second marriage is when the second spouse dies before the surviving spouse uses the first spouse’s DSUE, the amount is lost.

Due to the complexity of decisions, the use of professional fiduciaries was recommended to make decisions and manage the property. 

Be aware of the various options and timely filing of the estate tax return on the death of the first spouse.

For more content stemming from the 2017 Heckerling Institute on Estate Planning, please click here.

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