Portability Election in Estate Planning: Key Tips for Financial Advisors

How can financial advisors use the portability election in estate planning? Learn essential tips on maximizing estate tax exemptions and protecting assets.

Portability election is a key strategy that allows married couples to transfer unused federal estate tax exemptions to the surviving spouse. This technique can significantly reduce the tax burden on estates and protect family wealth, making it a vital consideration for financial advisors assisting clients with estate planning.

In this article, we’ll explore the importance of portability election, offering practical estate planning suggestions for financial advisors to guide their clients effectively.

Understanding Portability Election #

The portability election, introduced in 2011, allows the surviving spouse to use the deceased spouse’s unused estate tax exemption. This can be crucial for couples whose combined estates may exceed the estate tax threshold.

Currently, the estate tax exemption is set at $12.92 million per person (as of 2023), meaning a married couple could potentially shield nearly $26 million from federal estate taxes.

Benefits of Portability in Estate Planning #

1. Maximizing Tax Exemptions: Portability helps financial advisors ensure that their clients maximize the available estate tax exemptions. By transferring unused exemptions from the first spouse to die, the surviving spouse can potentially save millions of dollars in taxes.

2. Simplifying Estate Planning: For clients with moderate estates, the portability election can simplify the estate planning process by eliminating the need for complex trusts and other tax-avoidance strategies.

3. Avoiding Probate Issues: Utilizing the portability election can help clients avoid the delays and complications of probate by providing clear directives on the transfer of exemptions. Advisors can guide their clients through this process by ensuring proper documentation, including estate planning documents.

Key Tips for Financial Advisors on Portability Election #

1. Elect Portability on Time
Advisors must remind clients that portability must be elected within nine months of the first spouse’s death. Missing this window can lead to significant tax liabilities. Ensure your clients are aware of this deadline and have their digital estate planning documents in order.

2. Estimate the Value of the Estate
Before deciding whether to elect portability, financial advisors should estimate the value of the client's estate. If the surviving spouse’s estate may eventually exceed the federal exemption limit, portability election could be a valuable strategy to reduce estate taxes.

3. Review Trusts and Other Estate Plans
Financial advisors should review existing estate plans to determine if trusts, such as a credit shelter trust, are in place. Portability may be more beneficial for certain clients, while others may benefit more from traditional trusts, depending on their financial situation.

The Role of Gifting in Estate Planning #

Financial advisors should also consider advising clients on the benefits of gifting assets during their lifetime. With the annual gift tax exclusion currently set at $17,000 per recipient (2023), gifting can reduce the taxable estate over time. This strategy can complement portability election by reducing the overall estate value.

Additionally, advising clients to make use of insurance policies to cover potential estate taxes can further protect family assets and ensure liquidity in times of need.

Secure Your Estate Planning Documents with WillBox #

Portability election in estate planning provides a flexible and valuable tool for reducing estate taxes and preserving wealth for future generations. By staying informed on tax laws, assisting clients in filing timely elections, and incorporating gifting strategies, financial advisors can guide clients through the complexities of estate planning with confidence.

Ensure your estate plans are comprehensive and well-documented by visiting WillBox.me. Store your important estate planning documents securely and manage your digital inheritance with ease.

Frequently Asked Questions About Portability Election in Estate Planning #

Q1. What is the deadline for filing a portability election? #

The portability election must be filed within nine months of the deceased spouse’s death. Extensions may be available, but it’s essential to adhere to the deadline to avoid complications.

Q2. Is the portability election automatic? #

No, portability must be elected on the federal estate tax return (Form 706). Failure to file the necessary paperwork can result in the loss of this valuable benefit.

Q3. Can portability be used with trusts? #

Yes, portability can be used in conjunction with trusts, but financial advisors should assess each client’s situation to determine whether portability or a trust provides the most tax-efficient solution.

Q4. How does gifting work with portability election? #

Gifting during your lifetime can reduce the size of your taxable estate, complementing the portability election by further shielding assets from estate taxes.

Our service #

At WillBox.me, we provide a complete digital estate planning service that helps you organize and manage your digital assets, so they can be accessed and transferred by your loved ones after you pass away or become incapacitated. Our service includes creating a digital inventory, determining who will have access, providing instructions on how to manage your assets, and securely storing your digital estate plan.

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September 09, 2024

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